During the last two weeks of December, hedge funds erased the bulk of the losses recorded earlier in December, when risk aversion was elevated, according to Lyxor.

CTAs were again the best performers, in a remake of the patterns observed throughout the year (+4.7%from 16 December to 30 December). The good news came from Event Driven managers, up +3.1% during the same period. Yet, December was overall a mixed month, the Lyxor Hedge Fund Index being down 0.2% on the back of the underperformance of Fixed Income strategies (-3.1%). Their poor showing was related to the sharp high yield spread widening recorded earlier in the month, when liquidity issues emerged on some names.

Taking a wider perspective, we will remind 2014 as a good year for non-consensual players. Sovereign bonds and high grade credit continued to rally against expectations as global inflation expectations have been revised down. US equities outperformed European equities despite the monetary policy divergence which translated into a depreciation of the EURUSD and the fact that US equities trade at a premium. Still in the US, defensive stocks outperformed cyclicals’ despite the strong momentum of the US economy.

In the hedge fund space, similar non-consensual patterns were at play. CTAs achieved an exceptional year against expectations (+18.2% in 2014), mainly as a result of their investment process which does not take into acount the views of the crowd. Event-Driven disappointed (-2.3%) despite the fact that conditions were in place to achieve a strong year as M&A and divestiture activity were supportive. Finally, on a comforting note for the consensus, L/S Equity delivered in line with expectations, especially Variable Bias and Market Neutral players (up resp. 1.6% and 7.9%). 

Quantitative L/S Equity and multi strategy managers also posted strong performances, in the range of 5-15%.