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Convertible bonds record best performance in a year in July

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After two months of severe disappointment stock market investors seemed to renew with unbridled optimism in July, with the S&P 500 index rising by 7.01 per cent, its best return over the past 12 months, and implied volatility (23.50 per cent) dropping by one third.

Similarly, on the fixed income market, convertible bonds turned positive to record their best performance over the past year, up 5.42 per cent, the research by Edhec Risk Institute shows.

Regular bonds registered a second month of significant gains, up 0.99 per cent, while the Lehman Global Bond Index (+0.68 per cent) appeared more cautious.

The commodities market soared by 5.98 per cent whereas the dollar fell sharply, down 4.30 per cent, taking its most severe hit since May 2009.

Favourably impacted by the remarkable returns of convertible bonds and the renewed rise (+1.15 per cent) in the credit spread, the convertible arbitrage strategy registered a significant return of 2.32 per cent that was somewhat moderated by the booming stock markets.

Despite its significant long-term positive correlations with regular bonds and commodities, the CTA global strategy only managed to record a limited yet disappointing loss of 0.48 per cent.

On the other hand, the S&P 500 performance greatly benefited the equity-oriented strategies. First and foremost, both the long/short equity (+2.13 per cent) and event driven (+1.83 per cent) strategies returned to profitability. Even though it is in essence poorly correlated with the stock markets, the equity market neutral strategy recorded its most significant gain (+1.04 per cent) since May 2009.

Overall, almost all hedge fund strategies scored positively and, in such a favourable context, the fund of funds strategy exhibited a solid profit of 0.77 per cent.

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