All hedge fund strategies in its universe posted positive returns, except Convertible Arbitrage, according to Edhec. The month of February was characterized by sound stock market performance, while stock market volatility maintained its historically low levels. February was particularly favorable for growth and small-cap stocks. The conditions for the bond markets were less favorable with increasing short-term interest rates leading to a drop in bond prices. Against this backdrop, most strategies have returns that are above their historical averages. Unsurprisingly, directional equity-based strategies performed particularly well.
Convertible Arbitrage funds posted returns of -0.59% for the month of February. This negative return comes despite the strong equity market performance and may be due to low levels of short-term interest rates.
Distressed Securities funds returned 1.32% in February. This good result does not come as a surprise as the positive stock market performance and low volatility, as well as the good performance of small-cap stocks, meant very favorable conditions for managers following this strategy.
Emerging Markets hedge funds posted a return of 3.44% in February, which makes them the best performing strategy for this month. This result was facilitated by a stock market environment that was very friendly in general, and for small cap stocks in particular. The low levels of implied volatility over this month were also favorable to emerging markets hedge funds.
Equity Market Neutral funds showed sound returns of 0.86%. This performance is slightly above the historical average. The performance comes against a favorable backdrop of low and decreasing levels of implied volatility and the good performance of small-cap stocks and the stock market in general.
Event Driven funds posted returns of 1.54% over the month of February. This result was supported by positive equity market returns and low levels of credit spread and implied volatility, which meant favorable conditions for Event Driven managers.
With a return of 0.91% in February, Fixed Income Arbitrage funds yielded a return that is significantly above the historical average. This strong performance can be explained by very low levels of volatility in both the bond and stock markets, which are typically favorable to these managers.
With a return of 1.83% Global Macro managers achieved sound performance over the month of February. This is mainly due to the positive conditions on the stock market. It should be underlined that Macro managers were able to achieve this performance in spite of less favorable conditions in the bond market.
Long/Short Equity hedge funds posted a high return of 1.95% in February. This was achieved in an environment of very favorable conditions for managers in this strategy, as characterized by low levels of short-term interest rates, as well as the term spread and the credit spread, together with positive equity market conditions.
Merger Arbitrage managers posted returns of 0.61% on average in February. This result is slightly below average and may be surprising given the friendly equity markets, low levels of short-term interest rates and low spreads in the bond market (credit spread and term spread) which usually represent positive news for these managers.
Relative Value hedge funds only posted average returns of 0.83% in February, in spite of largely favorable conditions with low credit spreads and high stock returns, as well as low levels of implied volatility.
With a return of 1.51%, short selling hedge funds achieved surprisingly good results given the positive stock market conditions.