The top performing hedge funds strategies year to date struggled in July, as the stock market exhibited a difficult month and commodities indexes were over 5 percent lower on the month.

Event driven hedge funds monthly performance

Event driven hedge funds up 6.23% YTD

Event driven distressed strategies, up 6.23 percent year to date, were down slightly, -0.19 percent, in July, according to a Credit Suisse hedge fund returns study. The leading hedge fund strategy year to date in the Credit Suisse survey was closely followed by the Event Driven Multi-Strategy category, which is up 4.64 percent year to date but was down -0.77 in July.

As the S&P 500 recorded a loss of 1.38 percent in July, dedicated short bias strategies found opportunity. This category saw a 2 percent rise in returns, but is still down 4.52 percent on the year while the S&P 500 is up 5.66 percent year to date.

Event driven hedge funds market indexes

Hedge funds: Volatility in the dedicated short bias strategies

Considering risk reward into the equation, volatility in the dedicated short bias strategies was the most significant at 16.43 percent.  The Sharpe ratio, which is criticized for measuring risk on positive returns equally as negative returns, is negative to the tune of -0.51.  Much of this is to be expected from a short bias strategy, which would be expected to have a non-normal returns distribution and fat tails. This strategy is also known to have a low win percentage, but a high average win size. In other words there is a cost associated with hedging against a falling stock market.

The second most volatile strategy is emerging markets funds, with 14.7 percent vol. Upside deviation is likely a more pronounced aspect of the returns profile of this strategy when compared to the short bias strategy.  The Sharpe Ratio of this strategy is 0.32.

Hedge funds emerging markets
emerging markets funds

The most attractive fund categories on a risk reward basis included event driven, event driven distressed and multi-strategy funds, each with Sharpe ratios over 1.0, the survey showed. The lowest volatility was found in the event driven, risk arbitrage category.  All event driven categories recorded lower than average volatility numbers.

multi-strategy hedge funds
multi-strategy funds

As hedge funds gain, managed futures have another difficult month

For its part, managed futures had another difficult month even with the stock market down slightly. The algorithmic strategy was down 1.03 percent on the month and is down -0.43 percent on the year.

hedge funds Managed futures
managed futures

In a separate study of just trend following, a sub-component of the managed futures category, the Newedge trend index was down -1.06 percent on the month. The Newedge Trend Index, which is equally weighted, calculates the daily rate of return for a pool of the largest 10 trend following-based CTAs that are willing to provide daily returns and are open to new investment.