Equity Market Neutral: Still marching to the beat of its own drum
Oct 4th, 2009 | Filed under: Hedge Fund Industry Trends, Today's PostBy: Steve Wallace, AllAboutAlpha.com Editorial Board
After last year’s concurrent drawdowns in both equity values and hedge fund values, critics have charged that hedge funds have failed in their promise of uncorrelated returns. While this may have been true for some strategies (notably, the amorphous and decidedly long-biased “long\short equity” category), there are some strategies that actually came pretty close to delivering the alpha investors crave.
Equity Market Neutral (EMN) was one such strategy. Research has always shown this category to have a low equity risk exposure and last year was no exception. A recent report from Credit Suisse’s Quantitative Equities Group provides evidence of this.
The report reaches three main conclusions:
1. Equity market neutral funds continue to have a low correlation to other hedge fund strategies
It certainly isn’t news that correlations fast approached “one” during the financial crisis last year. However, EMN strategies (excluding Kingate* which had a large exposure to Madoff), were the third best performers among those strategies in the Credit Suisse/Tremont Hedge Fund Index last year – as illustrated by the report in the chart below (click to enlarge). More…
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