Fixed Income Arbitrage funds try to exploit pricing anomalies within Fixed Income Markets. They generally attempt to hedge out most interest rate risk by taking offsetting positions in similar securities (government bonds, corporate bonds, asset-backed securities, etc.). There are two major categories of fixed income arbitrage strategies: relative value and market neutral.

• Relative value: This strategy seeks to construct a portfolio which takes advantage of the pricing anomalies detected while maintaining a diversified risk profile. Neutrality with regard to the duration is not systematically targeted. The main objective is to maximize the portfolio’s return while controlling the risk.

• Market neutral: This strategy involves taking advantage of pricing anomalies between two or more sectors in the fixed income market, or between different securities in the same sector. The long and short positions are generally rebalanced in such a way as to maintain neutrality with regard to the market risk or the duration.

Fixed Income Arbitrage is a Relative Value strategy. Hence Fixed Income Arbitrage funds may be used as “Risk Reducers” in portfolios.

Monthly returns201620172018
January-0.88%1.16%0.72%
February-0.62%0.66%0.46%
March1.08%0.29%-0.01%
April1.33%0.30%0.53%
May0.40%0.43%0.16%
June-0.21%0.28%0.08%
July1.14%0.50%0.22%
August0.76%0.15%0.17%
September0.62%-0.33%0.36%
October0.63%0.31%n.a.
November0.25%0.05%n.a.
December0.85%0.09%n.a.
Annual5.45%3.94%2.72%
S&P 50011.96%21.83%10.56%
Lehman Treasury1.04%2.31%-1.67%
Quarterly returns201620172018
1st Quarter-0.43%2.11%1.17%
2nd Quarter1.52%1.02%0.77%
3rd Quarter2.53%0.31%0.75%
4th Quarter1.74%0.45%n.a.
Annual5.45%3.94%2.72%
S&P 50011.96%21.83%10.56%
Lehman Treasury1.04%2.31%-1.67%
Risk ProfileEdhec Fixed Income Arbitrage IndexS&P 500Lehman Treasury
Monthly Std Dev Ann'd3.65%14.20%4.43%
Sharpe Ratio0.400.260.01
Information ratio-0.18n.a.n.a.
Min. Monthly Return-8.67%-16.80%-4.39%
Max. Monthly Return3.65%10.93%5.31%
Mean Monthly Return0.44%0.62%0.33%
Median Monthly Return0.54%1.08%0.40%
Exc. Kurtosis29.621.471.52
Skewness-3.74-0.690.03
% of winning Months81.22%66.20%58.69%
Average Winning Return0.74%2.86%1.13%
% of losing Months18.78%33.80%41.31%
Average Losing Return-0.84%-3.75%-0.81%
Correlation AnalysisEdhec Fixed Income Arbitrage IndexS&P 500Lehman Treasury
S&P 5000.471.00-0.35
S&P 500 Value0.460.97-0.35
S&P 500 Growth0.450.97-0.33
S&P Mid Cap0.510.92-0.34
S&P Small Cap0.410.86-0.35
Lehman Treasury-0.11-0.351.00
Baa-Aaa-0.03-0.080.06
Chg in Baa - Aaa-0.33-0.120.17
10 years - 3 Months0.04-0.060.12
Chg in 10 years - 3 Months-0.03-0.03-0.04
VIX-0.31-0.440.27
Chg in VIX-0.31-0.660.20
in %CSFBHennesseeHFRHF NetBarclayCISDMGreenwich
2006 Q216.4%7.4%12.1%17.2%15.6%15.9%15.4%
2006 Q316.5%7.2%12.1%17.6%15.1%16.4%15.0%
2006 Q416.3%8.0%11.0%17.6%15.5%16.8%14.7%
2007 Q117.0%8.7%10.1%17.8%15.3%16.8%14.4%
2007 Q218.0%8.8%10.2%19.1%16.5%11.6%15.9%
2007 Q318.3%9.5%9.9%18.7%17.9%11.2%14.5%
2007 Q415.7%9.8%10.4%18.3%17.6%15.7%12.4%
2008 Q114.2%14.9%n.a.18.8%18.9%18.9%14.2%
2008 Q216.5%13.6%n.a.18.4%17.8%16.6%17.1%
2008 Q316.9%13.6%n.a.18.3%17.6%16.2%17.5%
2008 Q416.8%15.5%n.a.17.4%16.6%16.5%17.2%
2009 Q119.5%6.0%n.a.18.4%18.2%18.8%19.1%
2009 Q219.5%6.2%n.a.18.3%18.2%18.7%19.0%
2009 Q319.0%8.3%n.a.18.0%17.3%18.5%18.9%
2009 Q418.7%9.3%n.a.17.9%17.0%18.4%18.6%
2010 Q118.6%9.7%n.a.17.9%17.0%18.3%18.5%
2010 Q218.7%9.6%n.a.17.9%17.1%18.3%18.5%
2010 Q318.6%9.6%n.a.17.9%17.0%18.3%18.5%
2010 Q418.7%9.5%n.a.17.9%17.0%18.2%18.6%
2011 Q118.8%9.4%n.a.18.0%17.1%18.2%18.6%
2011 Q218.8%9.2%n.a.17.9%17.0%18.5%18.5%
2011 Q318.7%9.2%n.a.17.9%17.1%18.5%18.5%
2011 Q419.3%5.9%n.a.18.4%18.2%19.1%19.0%
2012 Q117.1%14.9%n.a.17.6%16.0%17.2%17.2%
2012 Q217.3%14.6%n.a.17.5%16.4%17.0%17.1%
2012 Q317.2%14.5%n.a.17.4%17.5%16.9%16.6%
2012 Q417.0%13.8%n.a.17.6%18.0%16.7%16.9%
2013 Q117.2%13.3%n.a.17.4%17.9%16.8%17.4%
2013 Q216.7%14.0%n.a.17.5%17.6%17.0%17.2%
2013 Q316.5%15.1%n.a.17.4%17.5%16.4%17.2%
2013 Q416.3%15.2%n.a.17.5%17.2%16.4%17.3%
2014 Q116.0%15.7%n.a.17.3%17.3%16.5%17.2%
2014 Q216.0%14.9%n.a.17.8%17.5%16.4%17.4%
2014 Q315.9%14.6%n.a.18.0%17.6%16.9%17.1%
2014 Q419.0%n.a.n.a.21.6%20.0%18.8%20.6%
2015 Q120.1%n.a.n.a.21.1%19.8%18.5%20.5%
2015 Q219.7%n.a.n.a.21.4%19.4%18.8%20.7%
2015 Q319.8%n.a.n.a.21.2%19.3%19.4%20.3%
2015 Q419.5%n.a.n.a.21.1%19.8%19.4%20.2%
2016 Q119.6%n.a.n.a.20.6%20.0%19.5%20.2%
2016 Q219.8%n.a.n.a.21.0%19.5%19.4%20.3%
2016 Q319.7%n.a.n.a.21.1%18.9%20.0%20.3%
2016 Q419.8%n.a.n.a.21.0%18.9%20.2%20.1%
2017 Q120.1%n.a.n.a.21.2%18.5%20.1%20.2%
2017 Q220.1%n.a.n.a.21.4%18.2%19.9%20.4%
2017 Q320.1%n.a.n.a.21.4%17.7%19.9%20.9%
2017 Q419.6%n.a.n.a.21.1%18.3%20.0%21.0%
2018 Q118.9%n.a.n.a.21.4%18.2%20.2%21.3%
2018 Q225.1%n.a.n.a.26.1%24.0%24.9%n.a.
2018 Q324.3%n.a.n.a.26.0%24.2%25.5%n.a.
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