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.
|Risk Profile||Edhec Fixed Income Arbitrage Index||S&P 500||Lehman Treasury|
|Monthly Std Dev Ann'd||3.63%||14.47%||4.42%|
|Min. Monthly Return||-8.67%||-16.80%||-4.39%|
|Max. Monthly Return||3.65%||10.93%||5.31%|
|Mean Monthly Return||0.43%||0.58%||0.34%|
|Median Monthly Return||0.54%||1.08%||0.40%|
|% of winning Months||80.18%||65.90%||58.99%|
|Average Winning Return||0.74%||2.89%||1.13%|
|% of losing Months||19.82%||34.10%||41.01%|
|Average Losing Return||-0.81%||-3.87%||-0.80%|
|Correlation Analysis||Edhec Fixed Income Arbitrage Index||S&P 500||Lehman Treasury|
|S&P 500 Value||0.46||0.97||-0.35|
|S&P 500 Growth||0.46||0.97||-0.33|
|S&P Mid Cap||0.51||0.93||-0.33|
|S&P Small Cap||0.42||0.87||-0.35|
|Chg in Baa - Aaa||-0.35||-0.09||0.14|
|10 years - 3 Months||0.05||-0.05||0.10|
|Chg in 10 years - 3 Months||-0.03||-0.03||-0.05|
|Chg in VIX||-0.32||-0.68||0.19|
|in %||CSFB||Hennessee||HFR||HF Net||Barclay||CISDM||Greenwich|
|Hedge Fund Strategies : January 2019|
|Equity Market Neutral||1.09%|
|Fixed Income Arbitrage||0.80%|
|Funds of Funds||2.33%|
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