Opalesque Industry Update - After a rather quiet month of April, markets in May experienced the first significant shock in the year 2012, and switched back to a stress regime reminiscent of September 2011, in the context of the persistent euro-zone turmoil. Stocks suffered a huge setback (S&P 500: -6.01%), with implied volatility jumping markedly and reaching a level not seen since the end of last year (VIX: 24.1%). While the riskier fixed-income market segments were severely impacted (Credit Spread Index: -1.62%, Convertibles: -4.65%), high grade corporate bonds rose significantly (Lehman Global: 1.72%). A global plunge in commodity prices (-12.95%) sent the index crashing to last September’s level. The US Dollar, in contrast, having recently emerged as a safe haven, gained 4.60%, nearing a 2-year high.|
The Equity Market Neutral (-1.19%) and Event Driven (-1.90%) strategies’ performance was consistent with their dynamic exposure to the stock market. The Long/Short Equity strategy (-3.74%) on the other hand exhibited negative alpha. The Short Selling strategy gained 7.23%, more than implied by either its long-term or short-term beta, showing some positive market timing effect.
Although the Convertible Arbitrage strategy lost 0.84%, it proved to be particularly resilient when considering the shocks undergone by its risk drivers: in terms of alpha it remains the best-performing strategy of the year 2012. Distressed Securities (-1.51%) logically suffered from the deterioration of the credit markets, but maintained some alpha.
The CTA Global strategy gained 2.90% in a large swing that brought it back into positive territory for the year to date, confirming its status as a diversifier amongst alternative strategies.
Finally, the Funds of Funds strategy lost 1.59%, and has barely remained positive since the beginning of 2012. Corporate website: www.edhec-risk.com