The sell-off in October was difficult to navigate for hedge funds, but there were substantial divergences across strategies, according to Lyxor’s latest Hedge Fund Brief.

Lyxor’s Philippe Ferreira (pictured), says: “L/S Equity and Event-Driven strategies underperformed due to their elevated market beta. L/S Equity strategies also suffered due to the rotation in risk factors which saw growth/ momentum stocks underperforming value and low beta stocks. Within Event-Driven, Special Situations strategies were especially hurt but Merger Arbitrage was resilient.”
 
“On a positive note, L/S Credit, Merger Arbitrage and Market Neutral L/S strategies were highly resilient thanks to their cautious positioning and low market beta. Global Macro strategies were also resilient, in several cases thanks to short positioning on equities.
 
“Going forward, we believe that market concerns are overdone and expect the market rebound to consolidate.”
 
“Over the medium term however, the growth deceleration in the US coupled with monetary normalisation suggest the volatility regime might remain elevated. Hence, low beta strategies such as Merger Arbitrage and Fixed Income Arbitrage remain highly attractive. On top of that, we also favour flexible L/S Equity strategies that can adjust their net exposure dynamically.”