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

Tuesday, June 19, 2012
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:

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

- fg

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