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The Center for International Securities and Derivatives Markets (CISDM) seeks to enhance the understanding of the field of alternative investments through research, education, and networking opportunities for our member donors, industry professionals and academics.

 

Asset Allocation

DISCLAIMER: The following analysis is based on historical data and is not necessarily indicative of future performance!

Tactical Asset Allocation

Three-Month Leading Factor Indicators and Hedge Fund Performance (October 2000 -September 2005)
S&P500 Index Small Cap Intra-Month Vol Implied Vol Ch. In Implied Slope of the Credit Risk Swap Spread
Return Return of S&P500 Index Vol Index YLD Curve Premium 10 year
Low Med Hi Low Med Hi Low Med Hi Low Med Hi Low Med Hi Low Med Hi Low Med Hi Low Med Hi
Equity Hedge L H L H M H M M L H L H L H L L M M L H L M H L
Relative Value Arbitrage L M L M M H L M M L L H L M M H M M L H L L H L
Global Macro L M M M M H M M M L M H M M M M M L L M H L M M
Fund of Funds L H L H M H M M L H L H L H L L M H L H L L H L
Equity Market Neutral L M L H M L H M M H M M H M H H L L H M L L M H
Convertible Arbitrage H M M L M H L M H L M H M M M H L M L H H L H H
Fixed Income: Arbitrage M M L M M H L H L L M H L M H M M M L M H L H L

Current Factor Values (September 2005) and Hedge Fund Three-Month Leading (December 2005) Performance Indicators
  S&P500 Index Small Cap Intra-Month Vol Implied Vol Ch. In Implied Slope of the Credit Risk Swap Spread Regression Based
  Return Return of S&P500 Index Vol Index YLD Curve Premium 10 year Projected Return
Current Factor Value 0.81% M 0.31% M 9.01% L 11.92% L -5.40% M 1.11% L 0.93% M 0.46% M  
Equity Hedge H M M H H L H H H
Relative Value Arbitrage M M L L M H H H M
Global Macro M M M L M M M M M
Fund of Funds H M M H H L H H H
Equity Market Neutral M M H H M H M M H
Convertible Arbitrage M M L L M H H H M
Fixed Income: Arbitrage M M L L M M M H M

Note: HFR indices used in above analysis

The tables above show the three-month-ahead hedge fund performance indicated by the historical relationship between factors and hedge fund returns. The top panel presents the historical pattern of performance of hedge fund strategies relative to the performance of the factors. For example, when S&P 500 returns have been low (as measured by the bottom 15th percentile of the historical distribution of S&P 500 returns), three months later Equity Hedge strategies have had below average returns (L) as well, while Convertible Arbitrage strategies have had above average (H) returns.

The bottom panel presents the current (September 2005) value of the factors and indicates whether the current value is relatively high (H), low (L) or medium (M). It also reports the projected return (December 2005) for various strategies. For example, the current value of the Small Cap return (average in historical terms) indicates average December 2005 performance for Global Macro strategies and average December 2005 performance for Fixed Income Arbitrage strategies.

The last column of the bottom panel represents the projected return on each strategy taking into account the total information provided by the factors. Overall, Fixed Income Arbitrage strategies are expected to perform average in December 2005.

Strategic Asset Allocation

Current Factor Indicators and Hedge Fund Performance (October 2000 - September 2005)
S&P500 Index Small Cap Intra-Month Vol Implied Vol Ch. In Implied Slope of the Credit Risk Swap Spread
Return Return of S&P500 Index Vol Index YLD Curve Premium 10 year
Low Med Hi Low Med Hi Low Med Hi Low Med Hi Low Med Hi Low Med Hi Low Med Hi Low Med Hi
Equity Hedge L H H H L H H M L H M L H H L M L H L M L H M L
Relative Value Arbitrage L M H H L H H M L H M L H M L H M L L H L H M L
Global Macro L M H H L H M M L H M M H M L H M L L H L H M L
Fund of Funds L M H H L H H M L H M L H M L H M H L H L H H L
Equity Market Neutral H L L L M H H L H H L L L M H H M L L H L H M L
Convertible Arbitrage H L H H M H M M H L M H H M M H M L L H M H M L
Fixed Income: Arbitrage L M H L M H H M L M M M L M M M M M L M M M M L

Current Factor Values (September 2005) and Contemporaneous Hedge Fund Performance Indicators
  S&P500 Index Small Cap Intra-Month Vol Implied Vol Ch. In Implied Slope of the Credit Risk Swap Spread Actual
  Return Return of S&P500 Index Vol Index YLD Curve Premium 10 year Return
Current Factor Value 0.81% M 0.31% M 9.01% L 11.92% L -5.40% M 1.11% L 0.93% M 0.46% M  
Equity Hedge H L H H H M M M H
Relative Value Arbitrage M L H H M H H M H
Global Macro M L M H M H H M L
Fund of Funds M L H H M H H H H
Equity Market Neutral L M H H M H H M L
Convertible Arbitrage L M M L M H H M H
Fixed Income: Arbitrage M M H M M M M M L

Note: HFR indices used in above analysis

The above graph shows the contemporaneous hedge fund performance indicated by the historical relationship between factors and hedge fund returns. The top panel presents the historical pattern of performance of hedge fund strategies relative to the performance of the factors. For example, when S&P 500 returns have been low (as measured by the bottom 15th percentile of the historical distribution of S&P 500 returns), Equity Hedge and Global Macro strategies have contemporaneously had below average returns as well.

The bottom panel presents the current (September 2005) value of the factors as well as the historical distribution range that value falls in and the contemporaneous performance ranges for the hedge fund strategies. The last column presents the actual contemporaneous performance of hedge fund strategies.

CISDM Hedge Fund/CTA Database

Hedge Fund/CTA Indices

CAIA
The Chartered Alternative Investment Analyst Program

The Journal of Alternative Investments
The Journal of Alternative Investments