The S&P 500 index fell steeper in July, dropping 2.03% and recording its third consecutive loss, accompanied by an exceptional surge of implicit volatility up 8.7% to 25.3%, reaching the level of last summer.
On the fixed-income market, regular bonds yielded a substantial profit of 0.84% which made up for their loss of June. The Lehman Global Bond Index scored even better, up 1.82%, and outperformed the S&P 500 index in 2011. Conversely, convertible bonds suffered heavy losses again, dropping 1.59%. Following five months of a strong rise and two months of record losses, the commodities market went up 2.58% as it seemed to calm down somewhat with a nevertheless comfortable gain. The dollar fell sharply by 1.20%
In these mixed market conditions, after two difficult months, the hedge fund strategies delivered better performances and all outperformed the equity market.
The setback of convertible bonds significantly impaired the convertible arbitrage strategy (-0.37%) which did not benefit from the receding equity market, nor from the increasing credit spread (+0.11%), and registered yet another, although limited, loss. The combination of profitable regular bonds, the rising commodities market and declining dollar sustained the CTA global strategy, which yielded profits again after two months of negative performance, rising by 2.70%. The regular bonds also provided a boost to the global macro strategy which recovered its loss of June an increased 1.49%.
With a very limited exposure to the stock market, the equity market neutral strategy managed to remain stable, going up 0.04%. Similarly to the S&P 500 index, the long/short equity and event driven strategies both recorded a third consecutive month of losses, although to a lesser extent, dropping 0.21% and 0.36%, respectively. The merger arbitrage strategy brought up the rear of the hedge fund strategies falling 0.46%
Globally in July, the hedge fund industry managed well as the fund of fund strategy (+1.01%) outpaced the S&P 500 index by more than 3%.
(CM)