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Hedge funds pick up in July despite mixed market conditions

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The bear trend continued on the stock market in July as pessimism set in among investors. The S&P 500 index (-2.03%) fell steeper, recording its third consecutive loss, accompanied by an exceptional surge (up 8.7%) of implicit volatility (25.3%) which reached the level of last summer.

On the fixed-income market, regular bonds (+0.84%) yielded a substantial profit which made up for their loss of June. The Lehman Global Bond Index (+1.82%) scored even better, and out-performed the S&P 500 index in 2011. Conversely, convertible bonds suffered heavy losses again (-1.59%). Following five months of a strong rise and two months of record losses, the commodities market (+2.58%) seemed to calm down somewhat with a nevertheless comfortable gain. The dollar (-1.20%) fell sharply.

In these mixed market conditions, after two difficult months, the hedge fund strategies delivered better performances and all outperformed the equity market.

The set-back 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 (+2.70%) which yielded profits again after two months of negative performance. The regular bonds also provided a boost to the Global Macro strategy (+1.49%) which recovered its loss of June.

With a very limited exposure to the stock market, the Equity Market Neutral strategy (+0.04%) managed to remain stable. Similarly to the S&P 500 index, the Long/Short Equity (-0.21%) and Event Driven (-0.36%) strategies both recorded a third consecutive month of losses, although to a lesser extent, whereas the Merger Arbitrage strategy (-0.46%) brought up the rear of the hedge fund strategies.

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%.

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