The month of August was characterised by rather strong performance of the stock markets, as indicated by above average returns of the S&P 500, while volatility remained at the same level as last month, still close to its historical lows. After the first positive return of the ongoing year posted last month, bond markets continued to rise. For the first time since February, commodity price levels showed a slight decrease, but remained very high.
In this environment, all strategies posted positive returns. These were clearly above the average historical performance for Convertible Arbitrage, Event Driven and Long/Short Equity, while CTA Global and Equity Market Neutral remained below their average performance. The best-performing strategy is event driven with a return of 1.23%, closely followed by Long/Short Equity with a return of 1.21%. The lowest return is the 0.10% reported by Equity Market Neutral, closely followed by CTA Global with 0.20%.
The performance of CTA Global managers was weak, but nonetheless positive after three months of negative performance. This strategy benefited from the strong performance of commodity and bond markets, but the low levels of implied volatility were not favourable. Convertible Arbitrage managers improved their performance, benefiting from the good performance of stock markets.
Two of the three equity-oriented strategies, Event Driven and Long/Short Equity, considerably improved their return compared to the previous month.
This can be clearly related to the good performance of the stock markets. Surprisingly, the return of the third equity-oriented strategy - Equity Market Neutral - was weak, with a slight decrease over the previous month. This difference may be explained by the fact that Event Driven and Long/Short Equity benefited from the currently low levels of implied volatility, while Market Neutral suffered from a fall in the T-bill rate.
Mathieu Vaissié is research engineer with the Edhec Risk and Asset Management Research Centre