The month of September was notable for the strong rebound in the stock markets following the decision by the US Federal Reserve to lower its main intervention rate by 50 basis points as a response to the liquidity crisis that occurred last summer. Market volatility declined significantly after having reached record levels since the beginning of the war in Iraq and the end of the bear market. The performance of the fixed-income markets fell well short of the previous month, but remained positive. The price of raw materials rose to new historical levels, advancing by more than 10%.

In this context, all hedge fund strategies managed to produce significantly positive returns that were well above their historical averages, especially long/short equity (+2.75%) and convertible arbitrage (+1.69%). CTA global managers produced a record monthly performance since November 2004 with a rise of +4.85%. This performance is certainly due to the high prices of raw materials and the solid performance of the fixed-income markets. It should also be noted that the strong performance of CTAs occurred in spite of a fall-off of 23% in market volatility, traditionally bad news for these managers.

The equity-orientated strategies (event driven, long/short equity and equity market neutral) therefore took advantage of the good performance both of the stock markets in general and of small-cap stocks in particular.

Fabrice Tahar is a research analyst with the EDHEC Risk and Asset Management Research Centre