Table 1 shows that, in spite of the flat performance of stock and bond markets, as well as the extremely low level of implied volatility on stock markets, all hedge fund strategies posted positive returns in June. Three out of five strategies end the first half of 2005 with a positive year-to-date return.
Despite the relative stability of stock markets (-0.01% for the S&P 500) and bond markets (+0.07% for the LGBI), directional strategies achieved the best performance in June. Indeed, with an average return of +2.51%, CTA global funds are the best performers in the alternative arena. This performance - their best performance since the beginning of the year - is all the more remarkable in that it was obtained despite the fact that the level of stock markets’ implied volatility drop to its lowest level since November 1995 (ie, 12.04 as opposed to an average of 22.71 since January 1997, for the VIX contract). CTA Global funds were notably able to take advantage of the rally on commodity markets (ie,+7.02% for the GSCI) to generate their performance.
Similarly, in part thanks to the sound performance of small-cap stocks (+3.16% for the S&P 600), long/short equity funds managed to post a strong return in June, namely +2.01%. With regard to event driven strategies, their performance was obtained amid a backdrop of low implied volatility in the stock markets, a stabilisation of the credit risk at a moderate level (the spread between the yield of bonds rated Baa and Aaa increased by 2% to 0.90%, slightly above its long-term average), and again, good performance from small-cap stocks. With a monthly average return of +1.45%, these strategies achieved their best performance since the beginning of the year. Finally, the relative value strategies (ie, convertible arbitrage and equity market neutral) were the worst performers in June, with respective returns of +1.14% and +0.84%.
Mathieu Vaissié, research engineer with the Edhec Risk and Asset Management Research Centre

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