Hedge Funds
Hedge funds are private, unregulated investment funds that use sophisticated instruments or strategies, such as derivative securities, short positions or leveraging, to generate alpha. Hedge funds cover a wide range of strategies with different risk and return profiles.
Investors need benchmarks to evaluate the performance of hedge fund strategies. Due to the scarcity of information, the logic of representativeness through market capitalization is difficult to apply to the alternative universe. As a result, finding a benchmark that is representative of a particular management universe is not a trivial problem. Many hedge fund indices are constructed from different data, based on diverse selection criteria and methods of construction, and they only give a partial view of each investment style. Thus, it makes sense to use some combination of the hedge fund indices available on the market to obtain more exhaustive information about a given style, as well as achieve more stability over time.
Since 2003, EDHEC-Risk Institute has been publishing the EDHEC-Risk Alternative Indices, which aggregate and synthesise information from different index providers, so as to provide investors with representative benchmarks. These indices are computed for thirteen investment styles that represent typical hedge fund strategies.
Click on a Hedge Fund Strategy to find more information
| Hedge Fund Strategies | November 2020 | YTD | Annual Average Return since January 2001 | Annual Std Dev since January 2001 | Sharpe Ratio |
|---|---|---|---|---|---|
| Convertible Arbitrage |
2.92%
|
10.65%
|
5.90%
|
6.09%
|
0.31
|
| CTA Global |
1.25%
|
-0.48%
|
4.05%
|
7.75%
|
0.01
|
| Distressed Securities |
4.26%
|
2.17%
|
7.74%
|
6.17%
|
0.61
|
| Emerging Markets |
5.68%
|
8.68%
|
8.14%
|
9.72%
|
0.43
|
| Equity Market Neutral |
0.33%
|
1.03%
|
3.56%
|
2.70%
|
-0.16
|
| Event Driven |
6.66%
|
6.15%
|
6.71%
|
6.46%
|
0.42
|
| Fixed Income Arbitrage |
0.77%
|
6.68%
|
5.32%
|
3.68%
|
0.36
|
| Global Macro |
2.15%
|
4.57%
|
5.14%
|
4.09%
|
0.28
|
| Long/Short Equity |
6.18%
|
9.28%
|
5.69%
|
6.88%
|
0.25
|
| Merger Arbitrage |
4.72%
|
4.97%
|
4.85%
|
3.60%
|
0.24
|
| Relative Value |
2.14%
|
2.92%
|
5.76%
|
4.22%
|
0.42
|
| Short Selling |
NaN
|
NaN
|
NaN
|
NaN
|
NaN
|
| Funds of Funds |
3.84%
|
7.18%
|
3.62%
|
4.84%
|
-0.08
|
* Cumulative return since January 1st of the current year
** Some data from Short Selling funds have not been released yet by index providers.
HIGHLIGHTS NOVEMBER 2020
- The month of November was characterized by a strong rebound in the financial markets, following two declining months. The S&P 500 registered a strong positive return (10.95%), not only erasing previous losses, but also reaching its highest index level since the start of our study period (January 1997). Market implied volatility decreased sharply to 20.57%, exactly matching its long-term average;
- On the bond market, the situation also clearly improved, as both regular bonds (0.49%) and convertible bonds (10.37%) posted positive returns. Concerning commodities market, the GSCI Commodity Spot index strongly increased (13.15%) erasing all its losses since the beginning of the COVID-19 crisis;
- The dollar, which had increased in the last two months, recorded a decline (-2.30%);
- In this environment, all strategies achieved positive performances. The best performing strategy was Event Driven (6.66%), followed by Long/Short Equity (6.18%). Not surprisingly, these two equity-oriented strategies took advantage of the boom in the equity markets. The lowest performing strategy was Equity Market Neutral (0.33%), followed by Fixed-Income Arbitrage (0.77%).;
- Distressed Securities and Event Driven YTD returned positive for the first time of the year, leaving only CTA Global with a negative YTD (-0.48%). Three additional strategies (Emerging Markets, Event Driven and Long/Short Equity) joined the group of strategies which are at their highest index level since EDHEC hedge fund indices' inception (December 1996), already made up of Convertible Arbitrage, Fixed Income Arbitrage, Merger Arbitrage, Relative Value and Fund of Funds;
- Overall, the Funds of Funds strategy posted a strong positive return (3.84%), in line with the market recovery.
- "EDHEC-risk Alternative Indexes: Hedge Fund Strategies Consolidate Their Performances In A Context Of Market Recovery” - Mondovisione (06/10/2020)
- "June was a positive month for hedge fund performance, says EDHEC-Risk" - HedgeWeek (11/08/2020)
- "Les hedge funds lorgnent la dette des entreprises en faillite ou en grande difficulté” - Les Echos (10/06/2020)
- "Le grand retour des vendeurs à découvert sur les Bourses européennes" - Les Echos (28/05/2020)
- "Les hedge funds surfent sur l'envolée mondiale des marchés" – 27/12/19 - Les Echos (27/12/2019)
About EDHEC
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