Wealth Manager - Essential news for investment professionals

Register to get unlimited access to all of Citywire’s Fund Manager database. Registration is free and only takes a minute.

The hedge fund strategies hit hardest by August turmoil

Hedge funds were impacted by a severe downward swing in August, when the S&P 500 index suffered its heaviest losses since May 2010, dropping 5.43 %.

Jumpy investors exacerbated the problem, sending the markets’ implicit volatility to 31.6 %, its highest level since June 2010.

Fixed income markets were not spared either, with convertible bonds dropping by 4.49% for a fourth consecutive month of losses.

The EDHEC-Risk Institute, which tracks the performance of hedge fund vehicles, reports that convertible arbitrage was the fund strategy punished most by the ‘plummeting convertible bonds and shrinking credit spread’.

Convertible arbitrage involves the simultaneous buy-up of convertible securities and the short sale of the same issuer’s common, or corporate equity, stock.

The strategy performed well during a slight upswing in the March quarter this year, but in August it recorded a fourth consecutive month of losses, dropping 2.09 %, its worst performance since May 2010.

The merger arbitrage strategy lost 1.20%, and along with the relative value strategy which dropped 1.86%, recorded their ‘worst monthly performance since the subprime-induced financial crisis.’

The EDHEC- Risk institute also notes that the equity market neutral strategy ‘took an unusually heavy blow’ falling 1.64 %, despite its limited exposure to the stock market.

Unsurprisingly short selling benefited most from the severe downturn, gaining 6.97 % for the month.

The other strategy which was profitable in a bad month was CTA Global, but only just. It gained 0.27%, its smallest change in the past fourteen months.

For the year to date, short selling tops the list of hedge fund strategies, followed by the fixed-Income arbitrage strategy which is down just 0.68%.

The August downturn has pushed the YTD performances of the event driven, long/short equity, distressed securities and emerging markets strategies ‘into negative territory’.

The EDHEC- Risk institute says that overall, the funds of funds strategy lost only 2.57% and outperformed the S&P 500 Index, but its YTD performance ‘continued to lag behind.’

Hedge Fund Strategies Aug-11 YTD Annual Average Return since January 2001 Annual Std Dev since January 2001 Sharpe Ratio
Convertible Arbitrage -2.09% 0.4% 6.6% 7.4% 0.36
CTA Global 0.27% 0.0% 7.2% 8.7% 0.36
Distressed Securities -4.08% -0.3% 10.6% 6.2% 1.07
Emerging Markets -3.90% -3.7% 11.3% 10.4% 0.70
Equity Market Neutral -1.64% 0.8% 4.5% 3.0% 0.18
Event Driven -3.78% -2.0% 8.0% 6.0% 0.67
Fixed Income Arbitrage -0.68% 3.8% 6.1% 4.5% 0.48
Global Macro -0.34% 0.3% 7.3% 4.4% 0.74
Long/Short Equity -4.07% -3.2% 5.4% 7.1% 0.20
Merger Arbitrage -1.20% 0.8% 5.4% 3.3% 0.42
Relative Value -1.86% 0.6% 6.6% 4.7% 0.54
Short Selling 6.97% 5.2% 0.8% 13.8% -0.23
Fund of Funds -2.57% -2.9% 3.9% 5.1% -0.02

Leave a comment!

Please sign in or register to comment. It is free to register and only takes a minute or two.
Citywire TV
Play Sarasin’s Boucher: why I like salmon with chocolate

Sarasin’s Boucher: why I like salmon with chocolate

Henry Boucher, manager of the £129 million Sarasin Food & Agriculture Opportunities fund, explains why he is gobbling up salmon and chocolate stocks.

Play Alibaba hype, the UK slowdown and opportunities in European sovereign bonds

Alibaba hype, the UK slowdown and opportunities in European sovereign bonds

Libby Ashby and leading wealth managers analyse what the Alibaba IPO hype means for Chinese equities, slowing growth of the UK economy and whether there’s anything left to play for in the European sovereign bond market.

Play Tesco, Japan and the rise of the central banker

Tesco, Japan and the rise of the central banker

 Libby Ashby and leading wealth managers scrutinise the food retail sector, Japan’s consumption tax hike and political risk in the markets.

Your Business: Cover Star Club

Veteran banker boosts Sanlam’s stockbroking team

Veteran banker boosts Sanlam’s stockbroking team

A veteran private banker has been recruited by Sanlam Private Investments to strengthen its advisory stockbroking team.

Wealth Manager on Twitter