Industry Updates

EDHEC hedge fund indices underperformed the stock market in March

Wednesday, April 18, 2012

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Opalesque Industry Update - In March, the stock markets continued to rise for the fourth consecutive month. The S&P 500 gained 3.29%, registering a 12.59% progression since the beginning of 2012. Equity implied volatility dropped sharply, settling at a level (VIX: 15.5%) near to a one year low. Fixed income markets were again contrasted, with a high grade segment confirming a downward trend (Lehman Global: -1.00%), but riskier assets characterised by slowing momentum (Credit Spread Index: 0.52%, Convertibles: 0.28%). Commodities (-2.10%) ended their rally brutally while the Dollar regained some ground (0.83%), with the pair persisting in the anti-correlated pattern adopted four months ago.

The Equity Market Neutral strategy (0.36%) performed in line with its dynamic exposure, while the more directional strategies (Long/Short Equity: 0.34%, Event Driven: 0.62%) seem to have reduced their beta faster than what the risk model suggests, capturing only a small fraction of the market performance. The Short Selling strategy lost 0.93%, thus signalling a reduced exposure after a disastrous beginning to the year.

The Convertible Arbitrage strategy (0.63%) continued to exhibit robust performance, even with the associated risk drivers weakening. The Distressed Securities strategy (0.93%) continued to show some alpha in addition to its profitable exposure to credit risk.

The global CTA strategy lost 1.94%, wiping out all the profits accumulated this year and more, thus confirming severe underperformance in 2012 (-0.59%: the worst amongst the major hedge fund strategies).

Funds of Funds, finally, only managed an unimpressive 0.11% gain, in contrast with the two rather good months previously.

Hedge Fund Strategies	Mar 2012	YTD*	Annual Average Return since January 2001	Annual Std Dev since January 2001	Sharpe Ratio
Convertible Arbitrage	0.63%	5.3%	6.7%	7.3%	0.36
CTA Global	-1.94%	-0.6%	6.4%	8.6%	0.28
Distressed Securities	0.93%	6.3%	10.5%	6.3%	1.03
Emerging Markets	-1.03%	6.4%	10.5%	10.6%	0.61
Equity Market Neutral	0.36%	2.0%	4.5%	3.0%	0.17
Event Driven	0.62%	5.3%	7.9%	6.1%	0.64
Fixed Income Arbitrage	0.69%	3.1%	6.1%	4.4%	0.48
Global Macro	-0.56%	2.7%	7.0%	4.4%	0.67
Long/Short Equity	0.34%	6.2%	5.4%	7.3%	0.20
Merger Arbitrage	0.18%	2.3%	5.4%	3.3%	0.44
Relative Value	0.56%	4.3%	6.5%	4.7%	0.54
Short Selling	-0.93%	-12.5%	-0.2%	14.1%	-0.30
Funds of Funds	0.11%	3.0%	3.7%	5.1%	-0.06