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EDHEC hedge fund indices underperformed the stock market in March

Wednesday, April 18, 2012
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

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