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All EDHEC hedge fund strategies negative in April except for short selling

Monday, May 21, 2012
Opalesque Industry Update - In April, the stock markets (-0.65%) ended a strong four-month upward trend and registered their first setback of 2012. Simultaneously, after six months of a spectacular fall from 43% in September 2011 to 15.5% in March, implied volatility (17.2%) rose marginally, up 1.7%.

On the fixed-income markets, a mitigated situation prevailed again. Regular bonds (+0.53%) renewed with profits after a drop in March, whereas convertible bonds (-0.47%) finally reached negative territory after three months of receding profits. The Lehman Global Bond Index (+1.46%) scored remarkably well and made up for its losses of March. Finally, the commodities market (-0.56%) and the dollar (-0.65%) both lost ground.

In this context, with the exception of a stable CTA Global strategy and a profitable Fixed Income Arbitrage strategy, all the major hedge fund strategies finally registered losses after a first quarter of positive but waning performances.

The strong progression of the LGBI, along with a receding dollar, did not make up for the moderate setback of the commodities market and the CTA Global strategy (-0.01%) only managed stability in the end. The shrinking credit spread and increasing default spread outweighted the negative performance of convertible bonds to sustain the growth of the Fixed Income Arbitrage strategy (+0.50%).

Despite the retreating stock market, overcome by the negative performance of risky bonds and a contraction in the credit spread (-0.38%), the Convertible Arbitrage strategy (-0.23%) did not manage profitability. The Equity Market Neutral strategy (-0.08%) exhibited relatively poor performance, as expected from a limited but statistically significant exposure to the equity market. The Event Driven strategy (-0.14%) registered a moderate loss whereas, significantly impacted by the Small-Cap vs. Large-Cap factor (-0.64%), the Long/Short Equity strategy (-0.65%) even failed to outperform the S&P 500 index.

Overall, the Funds of Funds strategy (-0.27%) managed a limited loss, which was about half that of the S&P 500 index.

Hedge Fund Strategies Apr 2012 YTD*
Convertible Arbitrage -0.23% 5.0%
CTA Global -0.01% -0.7%
Distressed Securities -0.11% 6.2%
Emerging Markets -0.45% 5.6%
Equity Market Neutral -0.08% 1.8%
Event Driven -0.14% 5.1%
Fixed Income Arbitrage 0.50% 3.5%
Global Macro -0.49% 2.1%
Long/Short Equity -0.65% 5.5%
Merger Arbitrage -0.13% 2.2%
Relative Value -0.23% 4.1%
Short Selling 1.02% -11.8%
Funds of Funds -0.27% 2.6%

Corporate website: www.edhec-risk.com

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