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 has been discontinued in August. The last update took place on August 4th for June 2021 values. Our research center is evolving and is focusing now on two fundamental topics: retirement investing and sustainable investing.
Click on a Hedge Fund Strategy to find more information
| Hedge Fund Strategies | June 2021 | YTD | Annual Average Return since January 2001 | Annual Std Dev since January 2001 | Sharpe Ratio |
|---|---|---|---|---|---|
| Convertible Arbitrage |
0.24%
|
4.73%
|
6.08%
|
6.04%
|
0.34
|
| CTA Global |
-0.56%
|
6.99%
|
4.51%
|
7.74%
|
0.07
|
| Distressed Securities |
1.03%
|
12.66%
|
8.30%
|
6.16%
|
0.70
|
| Emerging Markets |
0.96%
|
8.74%
|
8.59%
|
9.65%
|
0.48
|
| Equity Market Neutral |
0.27%
|
4.60%
|
3.76%
|
2.71%
|
-0.09
|
| Event Driven |
0.25%
|
11.76%
|
7.33%
|
6.50%
|
0.51
|
| Fixed Income Arbitrage |
-0.31%
|
3.32%
|
5.40%
|
3.65%
|
0.39
|
| Global Macro |
-1.16%
|
5.67%
|
5.47%
|
4.16%
|
0.35
|
| Long/Short Equity |
0.18%
|
8.83%
|
6.20%
|
6.91%
|
0.32
|
| Merger Arbitrage |
0.19%
|
7.30%
|
5.31%
|
3.80%
|
0.35
|
| Relative Value |
0.36%
|
5.40%
|
5.95%
|
4.18%
|
0.47
|
| Short Selling |
3.41%
|
NaN
|
NaN
|
NaN
|
NaN
|
| Funds of Funds |
0.35%
|
4.31%
|
3.89%
|
4.87%
|
-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 JUNE 2021
The month of June was characterized by a positive trend on the stock markets, with the S&P 500 registering a rather strong performance (2.33%), its fifth consecutive month of profits, leading to 15% cumulative increase since the beginning of the year. Market implied volatility decreased, for the fourth consecutive month, to 15.83%, returning to the levels observed in 2019, before the coronavirus crisis. This value is also much lower than its long-term average performance (around 21%);
- On the bond market, a mixed situation prevailed as regular bonds posted negative return (-0.30%), while convertible bonds posted positive return (1.60%), the reverse of the situation observed last month. Concerning commodities market, the GSCI Commodity Spot index registered a positive return (3.23%) for the third consecutive month, reaching its highest level in over more than six years;
- The dollar rose quite strongly (2.59%), after two months of decrease;
In this environment, most of the strategies delivered positive returns. The three exceptions were CTA Global (-0.56%), Fixed-Income Arbitrage (-0.31%) and Global Macro (-1.16%), which was the lowest performing strategy. These three strategies, as well as Short Selling, were also those which were not at their highest index level since EDHEC-Risk hedge fund indices' inception (December 1996). This month, all strategies delivered lower returns than their average over the last twelve months;
The best performing strategy was Short Selling (3.41%), far ahead of Distressed Securities (1.03%) and Emerging Markets (0.96%). The performance of the three equity-oriented strategies was quite low – Long/Short Equity (0.18%), Event Driven (0.25%) and Market Neutral (0.27%) – compared to the S&P 500 performance;
Overall, the Funds of Funds strategy posted a positive, but weak return (0.35%), 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)
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