Industry Updates

Most EDHEC hedge fund indices failed to escape market turmoil in May

Tuesday, June 19, 2012

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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

Hedge Fund Strategies	May 2012	YTD*	Annual Average Return since January 2001	Annual Std Dev since January 2001	Sharpe Ratio
Convertible Arbitrage	-0.84%	4.2%	6.5%	7.3%	0.34
CTA Global	2.90%	2.2%	6.6%	8.6%	0.30
Distressed Securities	-1.51%	4.6%	10.1%	6.3%	0.98
Emerging Markets	-5.83%	-0.4%	9.7%	10.7%	0.53
Equity Market Neutral	-1.19%	0.6%	4.3%	3.0%	0.10
Event Driven	-1.90%	3.0%	7.6%	6.1%	0.59
Fixed Income Arbitrage	0.15%	3.5%	6.1%	4.4%	0.47
Global Macro	-0.33%	1.7%	6.8%	4.4%	0.63
Long/Short Equity	-3.74%	1.5%	4.9%	7.4%	0.13
Merger Arbitrage	-0.57%	1.6%	5.3%	3.2%	0.40
Relative Value	-1.09%	3.0%	6.3%	4.7%	0.49
Short Selling	7.23%	-5.9%	0.5%	14.1%	-0.25
Funds of Funds	-1.59%	0.9%	3.5%	5.1%	-0.11
* Cumulative return since January 1st of the current year