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.
The programme has included in the past the “Advanced Modelling for Alternative Investments” research chair, in partnership with Société Générale Prime Services (Newedge).
We inform you that after 20 years of existence, EDHEC-RISK hedge fund indices’ publication will be discontinued in August. The last update will take place on August 4th for June 2021 values. Our research center is evolving and will focus now on two fundamental topics: retirement investing and sustainable investing.
Click on a Hedge Fund Strategy to find more information
| Hedge Fund Strategies | May 2021 | YTD | Annual Average Return since January 2001 | Annual Std Dev since January 2001 | Sharpe Ratio |
|---|---|---|---|---|---|
| Convertible Arbitrage |
0.56%
|
4.48%
|
6.09%
|
6.06%
|
0.35
|
| CTA Global |
1.64%
|
7.58%
|
4.55%
|
7.76%
|
0.07
|
| Distressed Securities |
1.68%
|
11.51%
|
8.28%
|
6.18%
|
0.69
|
| Emerging Markets |
2.09%
|
7.71%
|
8.57%
|
9.67%
|
0.47
|
| Equity Market Neutral |
0.35%
|
4.32%
|
3.77%
|
2.71%
|
-0.09
|
| Event Driven |
1.25%
|
11.49%
|
7.35%
|
6.51%
|
0.51
|
| Fixed Income Arbitrage |
0.30%
|
3.65%
|
5.44%
|
3.65%
|
0.40
|
| Global Macro |
1.88%
|
6.91%
|
5.55%
|
4.15%
|
0.37
|
| Long/Short Equity |
0.85%
|
8.64%
|
6.22%
|
6.92%
|
0.32
|
| Merger Arbitrage |
0.58%
|
7.09%
|
5.33%
|
3.80%
|
0.35
|
| Relative Value |
0.67%
|
5.02%
|
5.96%
|
4.19%
|
0.47
|
| Short Selling |
NaN
|
NaN
|
NaN
|
NaN
|
NaN
|
| Funds of Funds |
0.22%
|
3.95%
|
3.88%
|
4.88%
|
-0.02
|
* Cumulative return since January 1st of the current year
** Some data from Short Selling funds have not been released yet by index providers.
HIGHLIGHTS MAY 2021
- The month of May was characterized by a positive trend on the stock markets, with the S&P 500 registering a fourth consecutive month of profits. However, this increase was moderate (0.70%) compared to the 13% cumulative increase over the previous three months. Market implied volatility decreased to 16.76%, returning to the levels observed in 2019, before the coronavirus crisis, and also a value much lower than its long-term average performance (around 21%);
- On the bond market, a mixed situation prevailed as regular bonds posted positive return (0.30%), while convertible bonds posted negative return (-0.59%). Concerning commodities market, the GSCI Commodity Spot index registered a positive return (2.64%) for the second consecutive month, reaching its highest level in over six years;
- The dollar fell (-1.29%), for the second consecutive month, at its lowest level in over three years;
- In this environment, all strategies delivered positive returns and all of them were at their highest index level since EDHEC-Risk hedge fund indices' inception (December 1996). However, to the exception of CTA Global (1.64%) and Global Macro (1.88%), these returns were lower than their average over the last twelve months. The lowest performing strategy was Fixed-Income Arbitrage (0.30%), followed by Equity Market Neutral (0.35%);
- The best performing strategy was Emerging Markets (2.09%), followed by Global Macro (1.88%). The performance of equity-oriented strategies was rather mixed. If Event Driven comes out of the game with a return of 1.25%, the performance of Long/Short Equity (0.85%) and Market Neutral (0.35%) was in line with the moderate performance of equity markets;
- Overall, the Funds of Funds strategy posted a positive, but weak return (0.22%), far behind the S&P 500 performance.
- "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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