Arbitrage or relative-value strategy hedge funds, which aim to profit off of poor pricing has been successful in some categories, while unsuccessful in others. According to Bank of America Merrill Lynch’s hedge fund monitor, Convertible Arbitrage strategy is up 5.56 percent YTD on Nov 28 and this is the highest gaining strategy YTD, however, merger arbitrage is down -0.19 percent.

Hedge Fund Arbitrage BAML

Somewhat similar trends can be noted in HFRI Fixed Income-Convertible Arbitrage Index, which is up 6.6 percent in the year through October, while HFRI Merger Arbitrage Index has gained 1.09 percent in the same period. The difference in index appreciation can be easily attributed to the number of hedge funds that are followed by both monitors.

From the relative gains, it is clear that merger arbitrage has been difficult to manage. In the list of hedge funds that are suffering through a bad year is Loeb Capital Management’s Arbitrage Fund, which is up barely 1.8 percent in the past three quarters of this year. Most of the total gains were contributed in the last quarter, in which the fund returned 1.24 percent.

Other funds that have struggled in the merger arbitrage strategy are Centaurs Intl Risk Arbitrage, down -1.94 percent, Aetos Corporation -1.16 percent, Lion Fund +0.59 percent, and Gabelli Associates +0.79 percent, in the year till October. Surprisingly, John Paulson’s merger arbitrage funds are returning better than his event driven strategies. The arbitrage fund, Paulson Enhanced, is up 10.5 percent while Paulson International is up almost 5 percent. Contrarily, Paulson Advantage and Advantage Plus are down 12.68 and 18.4 percent respectively.

Loeb Arbitrage Fund’s quarterly commentary also mentions a couple of merger scenarios to explain how risk arbitrage works and how the outcome cannot be computed mathematically. The letter mentions the stark differences between the merger of Sprint Nextel Corporation (NYSE:S) and Softbank Corp (PINK:SFTBF) (TYO:9984), and how the announcement of Chicago Bridge & Iron Company N.V. (NYSE:CBI)’s acquisition of The Shaw Group Inc. (NYSE:SHAW) played out.

In the case of SHAW and Chicago Bridge & Iron Company N.V. (NYSE:CBI), The Shaw Group Inc. (NYSE:SHAW) had a boost in the stock market, while Chicago Bridge & Iron Company N.V. (NYSE:CBI) slid many points, the reason being that investors and analysts were not only surprised by the deal, but also thought that Chicago Bridge & Iron Company N.V. (NYSE:CBI) was paying a steep premium.

Specifically, Fixed Income Arbitrage strategy has gained the maximum in all classes of relative value hedging. Lyxor’s Fixed Income Arbitrage Tracker USD is up 9 percent through November, while the funds followed by HSBC Holdings plc (LON:HSBA) (NYSE:HBC)’s Hedge Weekly in the Fixed Income Arbitrage strategy have gained 11.2 percent on average.