Industry Updates

EDHEC hedge fund indices end 2009 on positive note, except for CTA and Short-Selling

Tuesday, January 19, 2010

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Opalesque Industry Update - In December, the stock market ended the year with another gain (+1.93%) and implied volatility (21.68%) was at its lowest level since May 2008. With a remarkable annual return in 2009 (+26.5%), the S&P Index recovered half the losses of the disastrous previous year (-37.0%).

On the bond market, regular bonds (-1.63%) registered their first loss since February but remained at a higher level than their pre-crisis peak of February 2008. On the other hand, convertible bonds (+1.45%) recorded a full year of monthly gains, managed an unprecedented annual performance (+36.8%) and reached their level of May 2008. The commodities market achieved a fourth month of significant gains (+2.35%). However, its remarkable return since February 2009 (+56.0%) only represents one-third of its losses after June 2008. The dollar scored well (+3.0%) and made up for the three previous months. The credit spread rose again (+2.33%) for a ninth consecutive month.

The good results of risky bonds and the increasing credit spread kept Convertible Arbitrage on the rise (+2.18%). With a full year of substantial monthly profits, the strategy scored a yearly gain (+46.9%) which made up for the 2008 losses (-25.6%), and clearly outperformed the S&P. Similarly, both Distressed Securities (+3.65%) and Emerging Market (+2.32%) strategies registered a tenth consecutive month of sound profit, and clearly outperformed (respectively +30.9% and +37.9%) the stock market over the year.

After a year of wavering monthly performances, the CTA Global strategy ended on a significantly negative note (-2.75%) which turned its annual result into a loss (-2.13%). Conversely, the Equity Market Neutral strategy scored positively (+0.84%) and secured a yearly gain (+5.20%) in line with the pre-crisis performances.

The Event Driven (+2.57%) and Long/Short Equity (+1.99%) strategies benefited from the stock market performance and both registered significant gains. Over the year, reflecting their correlation with the stock market, both strategies achieved annual performances (respectively +26.0% and +20.2%) that were comparable to but slightly below the S&P.

Overall, the Funds of Funds strategy registered a modest gain (+0.70%) and exhibited a yearly performance (+10.7%) which was clearly below that of the stock market.

EDHEC-Risk Institute - Hedge Fund Strategies	December 2009	YTD	Annual Average Return since January 2001	Annual Std Dev since January 2001	Sharpe Ratio
Convertible Arbitrage	2.18%	46.9%	6.5%	7.8%	0.32
CTA Global	-2.75%	-2.1%	7.3%	8.8%	0.38
Distressed Securities	3.65%	30.9%	11.1%	6.2%	1.14
Emerging Markets	2.32%	37.9%	12.5%	10.8%	0.79
Equity Market Neutral	0.84%	5.2%	4.7%	3.1%	0.23
Event Driven	2.57%	26.0%	8.5%	6.0%	0.74
Fixed Income Arbitrage	1.30%	24.4%	5.7%	4.8%	0.37
Global Macro	-0.30%	10.3%	7.7%	4.5%	0.82
Long/Short Equity	1.99%	20.2%	5.7%	7.1%	0.24
Merger Arbitrage	1.04%	10.0%	5.6%	3.4%	0.46
Relative Value	1.65%	21.2%	6.6%	4.9%	0.53
Short Selling	-3.66%	-20.5%	2.3%	13.9%	-0.12
Funds of Funds	0.70%	10.7%	4.4%	5.2%	0.07
* Cumulative return since January 1st of the current year

The EDHEC-Risk Alternative Indexes use factor analysis techniques to provide the best possible one-dimensional summaries of the information conveyed by the competing hedge fund indexes that are currently available on the market. Therefore, they can be thought of as a set of hedge fund indexes providing a cross section of existing indexes for each hedge fund strategy. www.edhec-risk.com

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