March was characterised by fairly strong stock market performance, as indicated by the above average returns of the S&P 500, for example. At the same time, stock market volatility, as measured by the implied volatility index VIX, marked historical lows during the month of March. The broad bond market showed a decline driven by increasing interest rate levels. The credit spread showed a pronounced increase while remaining low compared to its historical levels. Commodity prices posted a steep increase.
In this environment, all five strategies posted returns that are clearly above their historical averages. The best performer is CTA global with a return of 3.01%, followed by long/short equity with an average return of 2.43%. Equity market neutral managers show the lowest returns among the strategies analysed, though they still return 1.01% on average.
The good results for CTA global can easily be explained by the positive performance of the commodity markets and were further supported by the conditions on the bond market, notably decreasing prices and an increase in the credit spread. However, the strong performance of CTAs comes despite low volatility, which is generally bad news for these managers.
All equity-oriented strategies (event driven strategies, long/short equity and equity market neutral) clearly benefited from the evolution in implied volatility, which even decreased further from historically low levels. In addition, these managers profited from the good returns for the stock market in general, and for small capitalisation stocks in particular. It should however be noted that the increase in the credit spread meant negative news for these managers, especially for those of event driven funds. This was apparently outweighed by the positive equity market conditions.
Convertible arbitrage managers also posted strong performance with a return of 1.17%. Managers in this strategy were supported by rising interest rates and the good performance was achieved in spite of the increase in the credit spread.
Mathieu Vaissié is research engineer with the Edhec Risk and Asset Management Research Centre