The Lyxor Hedge Fund research team reports that November was an eventful month for investors. “The victory of Donald Trump at the US presidential election surprised pollsters and proved supportive for risk assets, against expectations. The MSCI World was up 2.7 per cent while fixed income markets continued to experience headwinds as the improved growth outlook led to a rise in bond yields.

“Hedge funds were cautiously positioned ahead of the US election and as a result failed to capture the market rebound. The Lyxor Hedge Fund Index was down 0.4 per cent in November as the rise in bond yields impacted negatively some strategies.

“CTAs underperformed, down 1.1 per cent, on the back of long fixed income exposures and trend reversals on commodities, in particular energy. [slide 3] The FX bucket also detracted as long positions on both EM currencies and the JPY dragged down performance in the wake of the election of Donald Trump.

“On a positive note, L/S Equity and Event-Driven outperformed. In particular, strategies with a higher market exposure delivered returns in the 1-1.5 per cent range in November. Merger arbitrage benefitted from the continued deal spread compression across a number of large deals, such as Monsanto/Bayer and LinkedIn/Microsoft. On the L/S Equity side, managers with a value bias, ie exposed to companies with lower valuations, outperformed markedly. Meanwhile, market neutral L/S equity managers suffered another drawdown in November.

“With regards to our investment recommendations they have evolved to take into account the new market regime that has started to take shape after the U.S. election. We have downgraded Short Term CTAs to make room for an upgrade in directional L/S Equity managers. Meanwhile, we find that the opportunity set for Special Situations has improved. Tax cuts, deregulation in the financial sector and infrastructure spending might lead to higher differentiation across companies a pursuit of shareholder friendly policies which creates opportunities for Special Situations managers that we upgraded at slight overweight. Both L/S Equity and Special Situations Managers Are Currently adding to cyclical sectors such as industrials, materials and financials.”