July was characterised by renewed falls in the stock market as shown by the -0.84% return of the S&P500, a moderate downturn if compared to the considerable decline of -8.4% observed the month before. By the end of July, the stock market had reached its lowest level since August 2006. Market volatility fell from 24% to 23%. The fixed income market remained positive, with a return of 0.42% for the Lehman Global Bond index. After three months of continuous rises, commodity prices fell back sharply, with a loss of around 12%.

All hedge fund strategies posted negative returns. Equity market neutral returned -1.14%, following a strong June. The poorest performance was posted by CTA global with -3.38%, a three-year low. This strategy was strongly penalised by the decrease in commodity prices.

 Convertible arbitrage posted a strong negative return, returning -1.98%. Though the return of this strategy is positively correlated with the bond market and negatively correlated with the stock market, two factors that should contribute positively to its performance, it is also strongly exposed to the credit spread, which exhibited a negative value. Long/short equity and event driven, two equity-oriented strategies, again performed negatively as they suffered from the falling stock markets.

Véronique Le Sourd is a senior research analyst with the EDHEC Risk and Asset Management Research Centre