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April was characterised by fairly strong performance in the stock market, as indicated by the above average returns of the S&P 500. Stock market volatility showed a slight increase while remaining close to its historical lows. The broad bond market showed a moderate decrease driven by increasing interest rate levels. The credit spread increased overApril, while remaining low compared to its historical levels. Commodity prices continued their increase from March and reached historical highs from September 2005.
In this environment, all strategies except convertible arbitrage posted returns that are clearly above their historical averages. Only convertible arbitrage stayed slightly below average returns but still posted a positive return of 0.63%. The best performer was CTA global with a return of 4.17%, followed by long/short equity managers with 1.94 % and event driven with 1.66%. equity market neutral managers returned 1.01% on average over the month of April.
The good results for CTA global can easily be explained by the good 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. It should be noted, however, that 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 current low levels of implied volatility, even though the latter increased from historically low levels. In addition, these managers profited from the good returns for the broad stock market. At the same time, they had to cope with the underperformance of small capitalisation stocks and an increase in the credit spread, which are typically bad news for these managers. Given that their performance was hindered by the increase in the credit spread, convertible arbitrage managers achieved good results with returns of 0.63%.
This result, which is only slightly below their historical average, was supported by rising interest rates and the favourable stock market conditions.
Mathieu Vaissié is research engineer with the Edhec Risk and Asset Management Research Centre

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