In December, the stock market experienced a slight rebound, with the S&P 500 gaining 1.02% in a context of steadily decreasing implied volatility: the VIX reached a 23.4% level after three consecutive months of retreat from its September peak (43.0%).
Fixed-income markets improved significantly with high-grade bonds (+1.19%) erasing their previous month’s loss and credit spreads tightening moderately (+0.53% for the index). In contrast, convertible bonds (-0.45%) continued to fall back.
Commodities (-1.99%) proved unable to sustain upward momentum and dropped back to their October level, while the dollar (+1.34%) ended the year with a slight gain after rising for two months in a row.
Benefiting from its credit exposure, the EDHEC-Risk’s Convertible Arbitrage strategy posted a 0.29% gain, but remained in the red over the full year (-0.70%). With no clear trend in the short term and a year characterised by sharp reversals in the markets, the CTA Global strategy (+0.29%) was barely positive for the month while posting a moderate yearly loss (-3.47%).
In line with a slight dynamic exposure to the equity risk factor, the Equity Market Neutral strategy managed small but positive monthly (+0.05%) and yearly (+0.88%) performances.
Despite significant dynamic betas relative to the S&P 500, the Event Driven (-0.37%) and Long/Short Equity (-0.57%) strategies were unable to benefit from December’s rebound, thus confirming severe underperformance over the full year, with -3.71% and -5.97% returns respectively.
The Funds of Funds strategy did not demonstrate any diversification effect, exhibiting a performance consistent with that of the worst strategy (Long/Short Equity) in December (-0.53%) as well as for the whole of 2011 (-5.86%).
