Industry Updates

All EDHEC hedge fund strategy indices up in January except for short selling

Monday, February 20, 2012

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Opalesque Industry Update - In January, the S&P 500 gained 4.48%, almost erasing the losses incurred since June 2011, while the implied stock market volatility continued to decrease, with the VIX returning to 19.4%, close to last year’s initial level.

Equity-focused strategies, having increased their net market exposure, as shown by dynamic betas significantly higher than their long-term counterparts, exhibited strong performance and reached a five-month high: Long/Short Equity (3.36%), Event Driven (2.95%) and even Equity Market Neutral (1.01%).

In contrast, unsurprisingly enough, the Short Selling strategy (-6.85%) recorded a massive loss.

While emerging markets scored an impressive 11.32%, the corresponding hedge fund strategy only managed less than half of it (4.55%), in line with its measured dynamic exposure.

All segments in the fixed-income space showed significant gains, with high-grade bonds (0.97%) advancing to a one year high, and credit (1.53%) and convertibles (5.07%) almost reproducing last October’s stunning performance.

The Convertible Arbitrage strategy, with strong loadings on the previous two factors, consequently achieved its best performance of the past year (2.22%). The Distressed Securities (3.28%) and Fixed Income Arbitrage (1.33%) strategies also benefited from a significant credit exposure.

Commodities (2.44%) and the dollar (-1.00%) experienced a reversal and continued to lack direction.

The CTA Global strategy, with a reduced overall market exposure, only managed to post a 0.49% gain.

Finally, the Funds of Funds strategy (1.65%), started the year on a positive note after a horrendous 2011.

Hedge Fund Strategies	Jan 2012	YTD*	Annual Average Return since January 2001	Annual Std Dev since January 2001	Sharpe Ratio
Convertible Arbitrage	2.22%	2.2%	6.5%	7.3%	0.34
CTA Global	0.49%	0.5%	6.6%	8.6%	0.30
Distressed Securities	3.28%	3.3%	10.3%	6.3%	1.00
Emerging Markets	4.55%	4.5%	10.5%	10.7%	0.61
Equity Market Neutral	1.01%	1.0%	4.5%	3.0%	0.16
Event Driven	2.95%	2.9%	7.8%	6.1%	0.62
Fixed Income Arbitrage	1.33%	1.3%	6.0%	4.4%	0.46
Global Macro	2.05%	2.1%	7.0%	4.5%	0.68
Long/Short Equity	3.36%	3.4%	5.3%	7.3%	0.17
Merger Arbitrage	1.03%	1.0%	5.4%	3.3%	0.43
Relative Value	1.95%	1.9%	6.4%	4.8%	0.51
Short Selling	-6.85%	-6.9%	0.3%	14.1%	-0.26
Funds of Funds	1.65%	1.7%	3.6%	5.1%	-0.07
* Cumulative return since January 1st of the current year