Three months positive
Despite the poor performance of stock markets (especially the small cap and growth stock segments), hedge funds managed to take advantage of the good performance of bond markets and the rally on the commodity markets to post positive returns for the third month in a row.
CTA Global funds achieved the best performance in August as they were not only able to capitalise on the downtrend in the stock markets (-1.12% for the S&P 500) but also on the boom in the commodity markets (+15.7% for the GSCI). The bullish bond markets (+0.92% for the LGBI) and the slight increase in the implied volatility of the stock markets (+8.9% for the VIX) further benefited this type of fund. It is worth stressing that despite the bearish stock markets, in particular the small cap (-1.55% for the S&P 600) and growth stock segments (-1.27% for the S&P 500 Growth), long/short Equity funds managed to post satisfying performance. It is thus essentially thanks to their ‘stock picking’ ability, and for some of them thanks to a directional bet on Asian markets, that funds generated positive performance in August.
In the absence of any directional bias (especially in Asia), and because of the slight increase in the implied volatility of stock markets, equity market neutral funds were not able to imitate their long/short equity peers. Indeed, in spite of a moderate increase in short-term interest rates, they fell short of their long-term average performance. Convertible arbitrage funds, on the other hand, achieved a positive return for the third consecutive month, after an extremely difficult start to the year. This performance, in line with their long-term average performance, was obtained in spite of relatively tight volumes, notably thanks to a stabilisation of credit spreads at a moderate level and a slight increase in the implied volatility of stock markets. Finally, Event Driven funds also performed well against a backdrop of declining stock markets and increasing volatility. This performance may be explained by the growing optimism of investors with regards to the distressed securities market, and the increased M&A transactions.
Mathieu Vaissié, research engineer with the Edhec Risk and Asset Management Research Centre