January was characterised by a strong decline in stock markets, with an S&P500 return of -6.12%. This index, which fell for the third month in a row, finished the month at its level of October 2006. Market volatility is still very high, at a level comparable to that observed last summer during the subprime crisis. The fixed-income market recovered after its negative performance of last month, as illustrated by the strongly positive performance of 2.13% for the Lehman Global Bond index. Commodity prices, which reached historic highs last month, remained at the same level.                            

In this context, most of the hedge fund strategies registered negative performances, with CTA Global being the only strategy among the six considered to perform positively. The lowest return was posted by long/short equity.

CTA Global exhibited a strong positive performance of 2.82%, which was significantly higher than its long-term average performance. This strategy has clearly benefited from the historically high levels of commodity prices. Though its performance continued to be negative, convertible arbitrage performed slightly better than last month.

The three equity-orientated strategies were strongly penalised by the fall in the stock markets. Long/short equity registered the worst performance with a return of -3.96%.Véronique Le Sourd is a senior research analyst with the EDHEC Risk and Asset Management Research Centre