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 | February 2021 | YTD | Annual Average Return since January 2001 | Annual Std Dev since January 2001 | Sharpe Ratio |
|---|---|---|---|---|---|
| Convertible Arbitrage |
1.89%
|
4.41%
|
6.17%
|
6.09%
|
0.36
|
| CTA Global |
3.15%
|
2.81%
|
4.37%
|
7.78%
|
0.05
|
| Distressed Securities |
3.16%
|
5.63%
|
8.10%
|
6.20%
|
0.66
|
| Emerging Markets |
1.62%
|
3.71%
|
8.48%
|
9.71%
|
0.46
|
| Equity Market Neutral |
1.39%
|
1.42%
|
3.67%
|
2.71%
|
-0.12
|
| Event Driven |
3.72%
|
5.46%
|
7.14%
|
6.53%
|
0.48
|
| Fixed Income Arbitrage |
0.39%
|
1.83%
|
5.42%
|
3.67%
|
0.39
|
| Global Macro |
1.49%
|
1.61%
|
5.35%
|
4.14%
|
0.33
|
| Long/Short Equity |
4.42%
|
4.32%
|
6.08%
|
6.95%
|
0.30
|
| Merger Arbitrage |
1.88%
|
5.47%
|
5.31%
|
3.78%
|
0.35
|
| Relative Value |
1.59%
|
2.65%
|
5.92%
|
4.21%
|
0.46
|
| Short Selling |
0.90%
|
NaN
|
NaN
|
NaN
|
NaN
|
| Funds of Funds |
2.74%
|
1.76%
|
3.82%
|
4.89%
|
-0.04
|
* Cumulative return since January 1st of the current year
** Some data from Short Selling funds have not been released yet by index providers.
HIGHLIGHTS JANUARY 2020
- The month of February was characterized by a rather strong performance on the stock markets, with the S&P 500 registering a positive return (2.76%), ending the month at its highest level since the start of our study period (January 1997). Market implied volatility decreased to 27.95%, a value higher than its long-term average performance (around 21%), but lower than its average performance over the last twelve months (around 31%);
- On the bond market, a mixed situation still prevailed, as regular bonds posted a negative return (-1.11%), for the second consecutive month, and convertible bonds posted a strong positive return (3.20%) for the fifth consecutive month. Concerning commodities market, the GSCI Commodity Spot index produced a strong performance (10.67%) for the fourth consecutive month, erasing its 2020 losses;
- The dollar rose slightly (0.15%) for the second consecutive month;
- In this environment, all strategies achieved positive performances, higher than their average performance over the last twelve months for all of them except three (Emerging Markets, Fixed-Income Arbitrage and Short Selling). In addition, all strategies except Short Selling were at their highest index level since EDHEC hedge fund indices' inception (December 1996);
- The best performing strategy was Long/Short Equity (4.42%), followed by Event Driven (3.72%). Not surprisingly, these two equity-oriented strategies took advantage of the equity market strong performance, which also benefited to Market Neutral (1.39%), the third equity-oriented strategy, though to a lesser extent. The lowest performing strategy was Fixed-Income Arbitrage (0.39%), followed by Short-Selling (0.90%);
- Overall, the Funds of Funds strategy posted a positive return (2.74%), practically matching 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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