and the HFRX Equity Hedge index was up 1.6%, compared to the MSCI World index up 1.2%, all in US dollar terms. “Conversely, global macro and CTA managers posted mixed results – several longer- term conviction trades detracted from performance, such as long US dollar and the Japan reflation.”


Overall, active investors view equity markets as attractive, but they retain a degree of caution on valuations, commented Lawler: “Investors generally hold the view that equities are at or above neutral valuation territory. They got here primarily through multiple expansion and now real growth is needed to drive equities higher. Despite this, event-driven and equity hedged managers continue to see opportunities for stock and sector selection and corporate events. The cautious view on valuations yet positive view on alpha is evident from managers running high portfolio gross exposure, while portfolio net exposure to market risk is below peak levels. In a new development, we are seeing equity hedge managers being more active on the short side. We are also seeing event- driven managers add to positions – corporate activity levels increased and pending event deals generally traded higher – contributing to performance in February.”


Credit continued to be well supported in February with a lack of new bond issuance helping to drive existing credit higher as money flowed into high- yield and investment-grade names.


GAM's outlook for the rest of 2014 remains unchanged and investors should be prepared for choppy waters, suggests Lawler: "Volatility is likely to continue to be more of a feature this year, but there are arguably investment opportunities, especially within equity long/short and event- driven approaches. We continue to expect global macro strategies to find good risk/reward opportunities later in the year as some trades like Japan reflation re-establish themselves. We are already seeing green shoots appear because divergences in global policy paths and growth spell opportunity for alpha in fixed income and currency markets."


Managed Futures 20 down in February The iSTOXX Efficient Capital Managed Futures 20 Index was down -0.03% in February, bringing the year-to-date return to -2.04%. Long-term managers represented the only positive strategy on the month gaining 1.08%. FX, short-term and global macro managers struggled on the month, losing -1.67%, -1.35% and -1.28% respectively. Equity markets rebounded from January’s declines despite emerging geopolitical turmoil in Ukraine that heightened tensions between Russia and the West.


Although jobs data disappointed, the S&P 500 continued its trend higher, posting fresh all-time highs. European equities rallied sharply while Japanese equities struggled. Bond markets were generally range-bound throughout much of the month as monetary policy continued to diverge among developed nations. In the US, the Federal Reserve made an additional $10 billion reduction in monthly asset purchases; while the ECB, Bank of Japan and Bank of England all maintained course on their current expansionary monetary policy.


Currency markets were characterised by reversals as the US dollar weakened against other major counterparts during the latter half of the month. Commodity markets were volatile in February. After recent downtrends, precious metals rallied sharply with gold and silver moving higher 6.6% and 10% respectively. Energy markets were particularly volatile as natural gas rallied by more than 20% early in the month, only to plummet by more than 25% over the latter half of the month. At present, weights among long-term, short-term, FX and global macro managers are 55%, 24%, 9% and 12%, respectively. Short-term managers represent the only positive strategy on the year so far.


February not that cold, reports Lyxor The Lyxor Hedge Fund Index was up 1.9% in February, bringing year-to-date performance to 1.45%. Out of 12 in total, 11 Lyxor strategy indices ended the month in positive territory, led by the Lyxor Special Situations Index (+3.48%), the Lyxor CTA Long Term Index (+3.4%) and the Lyxor L/S Equity Long Bias Index (+2.7%).


Gains across equity markets reversed the weak start to the year, driven by better investor sentiment and lower risk premiums. The consensus eventually ignored most of the US data noise, likely impacted by extreme weather. The end of the US earnings season, finishing on a strong note, and firm economic data in Europe also provided support. EM markets remain a source of concern, where many currencies continued to sell off. Fixed income yields have not rebounded with other risk assets, making for a more conservative take on global growth.


Strong performances were recorded in long/ short equity. Variable-bias funds were up 1.8%, comparing nicely with their long-bias peers, up 2.7%, with about half of their net exposure. Positions on cyclicals, non-large cap, and European stocks posted the strongest relative performance. The variety of themes which can be expressed in European equity (including EM exposure, EU core versus periphery, recovery themes, domestic versus external demand dynamic) has contributed to alpha generation. Positions in Europe are


gradually reweighted, in particular in consumer and industrial stocks. Long-bias funds have marginally reduced their net exposure, but their long book remained unchanged. Funds focusing on Asia and emerging markets as well as market- neutral funds have unsurprisingly been lagging. On average long-bias funds enter March with a 75% net exposure, and a 140% gross exposure; for variable bias, 35% and 200% respectively.


Special situation funds ranked number one in February up as much as 3.5%. All event-driven funds got boosted by the recovery in risk sentiment. Special situation positions performed well. Merger arbitrage funds also enjoyed a fresh load of new deals. Interestingly, hostile and stock deals accounted for a more significant share of the volumes announced lately. These aggressive features bode well for the gradual momentum supporting M&A trends. Mega-deals including Time Warner, Verizon or Forest Laboratories announced this month were successfully played by most funds. On average, event-driven funds end the month with a 60% net exposure (shaved off across the board from 70% early this year) and a stable gross exposure at 120%. Their four main sector concentrations are on communications, financials and consumer – both cyclicals and non-cyclicals.


Following a tough month of January, long-term CTAs rebounded strongly, up 3.4% in February. They benefited from their equity and to a lesser extent, rates positions. These had been maintained – though reduced – despite the weakness early this year. Short US dollar positions against euro and pounds positively contributed. Main losses were recorded in long energy and short precious metals. Medium-term models underperformed, hit in January, and again in February once positions were rebalanced. Short-term CTAs have been faster to adjust their exposure to the February reversal. They profited from volatility in base metals and agriculturals. Besides, the downward repricing of the US economy in short-term and long-term bonds was captured by these models. On average CTAs ended the month with an elevated margin to equity (around 15%), resulting from current low levels of volatility and correlation. About 30% of this risk is allocated to equity, and 10% to bonds.


The rebound in risky assets also profited global macro – up 0.7% – which had kept a reasonably constructive take on growth. How this view was implemented in detail explains the dispersion of returns within the group. On average, they made profits on equity (in Europe in particular, which they also reweighted, reflecting the turn in relative economic surprises), on long precious metals. Losses were generally incurred in their Japanese stakes, and commodity relative-value trades.


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