The following is an excerpt from Crystal Kim | April 3, 2017 | Barrons.com |
"After several challenging years following the financial crisis, the risk-adjusted performance of hedge funds, measured by sharpe ratio, is improving," writes Bank of America Merrill Lynch technical analysts Jue Xiong. "As of the end of February 2017, hedge funds delivered sharpe ratio of 3.8 over the trailing 12 months, compared to 1.3 by the S&P 500."
The BofA note highlighted the fact that distressed credit funds returned 19.5%, event-driven, 13.2%, and convertible arbitrage funds, 10.7%, beating the S&P 500's 10.6% from March 31, 2016 to February 1, 2017. Meanwhile stock market neutral funds, long/short funds, macro funds, managed futures, merger arbitrage funds, and dedicated short biased funds fell short.
Examining the data more closely, it appears that the BofA note compared the total returns of the hedge funds to the price change of the S&P 500. That's not an apples-to-apples comparison. Over the same time period, the S&P returned 12.6%, which knocks out convertible arbitrage funds' 10.7% return. It's also probable that the S&P 500 returns beat event-driven funds' returns after fees. Lyxor's Philippe Ferreira likes event-driven funds and finds them "highly attractive." He explains:
For more visit: Barrons.com