Equities excel while bonds underperform
October was characterised by the improving performance of the stock markets, as indicated by the above average returns of the S&P 500, while volatility remained at the same level as the previous month, still close to its historical lows. Bond market performance declined again, reaching a low, but still positive, level. Commodity price levels remained almost the same, still high, with a very slight progression after two months of falling prices.
In this environment, all strategies posted positive returns. Most of them are above their average historical performance, and even significantly above for event driven, long/short equity and funds of funds, while convertible arbitrage and equity market neutral remained below their average performance.
The best-performing strategy was event driven with a return of 2.10%, closely followed by long/short equity with a return of 2.03%.
The lowest return is the 0.47% reported by equity market neutral, closely followed by convertible arbitrage with 0.52%.
The performance of CTA Global managers was quite good in October, after their negative performance of September, despite the poor performance of bond markets. This strategy is still benefiting from the high levels of commodity prices, although the low levels of implied volatility were not favourable. Surprisingly, convertible arbitrage fell sharply, despite strong stock markets.
Two of the three equity-oriented strategies, event driven and long/short equity, considerably improved their return compared to September and exhibited strong performance on the back of bullish markets. The return of the third equity-oriented strategy - equity market neutral - was weaker, but increased significantly over the previous month.
Mathieu Vaissié is research engineer with the Edhec Risk & Asset Management Research Centre