I am wondering what is working in the equity markets and what is not? Who is making money in equities? longs, shorts, developed, emerging markets? Are you buying anything or sitting on a lot of cash? Thanks for your input.

I am making good money in this market, because my strategy is discretionary macro. My winners include: shorts in S&P, Dow and Nasdaq indexes, shorts in GM and Ford, shorts in Treasury bond futures. However, my losers include: longs in NCR, Lehman Brothers and Apple. To be determined: I have another long in Apple and Lehman Brothers, shorts in Wal-Mart and Best Buy, and short EUR put/USD call. I am up 11% YTD.

fars1d3s,Are you up 11% on your PA or do you actually run a global macro fund?thanks

Most Tremont hedge fund indexes didn't do that well in 2004

we run a lot of strategies - most are deallocated or hovering around zero, but winners include holding company arb, credit tranche trading, short CB arb (reverse of normal CB arb), and vol arb in the form of buying puts on variance. fortunately no big losers. we are up about 3% so far post fees and costs.11% is terrific!

a long-short fund is a long vol play; in a low-vol, high correlation environment, it is that much harder to generate alpha. It seems like fundmaental risks at the company level are dropping and there is a convergence of market participants on the long and short side about the risk. That could be making it hard for many hedge funds to make moeny.

Having worked for a FoF, I noted that most strategies in the equities and space are long vol; some believe that the lower inflation environment and lower leverage of companies reduced volatility - a view with which I tentatively agree.

QuoteOriginally posted by: erstwhilewe run a lot of strategies - most are deallocated or hovering around zero, but winners include holding company arb, credit tranche trading, short CB arb (reverse of normal CB arb), and vol arb in the form of buying puts on variance. fortunately no big losers. we are up about 3% so far post fees and costs.11% is terrific!I think convert arb and to some extent fixed-income arb are both over-rated. Life is too short to engage in a strategy that guarantees a mediocre return every year, and these returns are not necessarily risk-free ! Directional macro at least gives you an opportunity to make good returns on a daily basis.

Quote.I think convert arb and to some extent fixed-income arb are both over-rated. Life is too short to engage in a strategy that guarantees a mediocre return every year, and these returns are not necessarily risk-free ! Directional macro at least gives you an opportunity to make good returns on a daily basis.What are you talking about !!!! have you heard about risk adjusted returns? Do you by any means know for what absolute return products are made for? Do you understand the drivers of return of conv arb and why it has underperformed, do you understand the properties of combining conv arb with fixed income arb from a business point of view? ... I guess noMacro trading ON A DAILY BASIS? again what are you talking about? unless you are talking about a CTA , but CTA IS NOT MACRO

I realize that these arb strategies have great Sharpe ratios, probably the best Sharpe ratios of all the strategies. My point is that the Sharpe ratio is one factor, although important but certainly not the only factor, that determines overall investment objectives. For example: an arb strategy (convert arb or fixed-income arb or other strategy ....) returns 12% .... with portfolio vol around 3% and risk-free interest-rate = 3% say. This means Sharpe ratio = 3.0 ( = [12 - 3] / 3 ).But if a macro strategy returns 25% ... with portfolio vol around 15%. Then Sharpe ratio = (25 - 3)/15 = 1.467It's not automatic that the higher Sharpe ratio arb strategy is a superior strategy.

convert arb 12%? try negative 12%! we only do short CB arb. short the CB and long stock with interest rate hedge (plus overall portfolio vega hedge).cb arb has in my opinion gone into a death spiral.

very interesting thread. i think a low sahrpe ratio is a low sharpe ratio. since almost everything is in one way or the other leverable (does that word exist?), who cares a bout the absolute level of return. nevertheless the case of low sharpe ratios requires careful choice of risk free. i would advise to take something like the overnight rate and subtracting the dailyEquivalent from the daily pnl. convert arb, volume outstanding somewhere at USDbn 600. money in convertr hedge funds somewhere about USDbn 20, times their leverage of lets say 3, makes a market position of about USDbn 60. 60/600 is about 10% market share, spells impact. spells free lunch in a buyers market is over. just my opinion ... though i must admit i have been thinking like that since 2001 ... and i think convert arb did not do too bad since then ...low vola/ high correl is key trouble for our pairs trading us equity strategy, which we closed last nov with a dirty zero for the year. anybody already using time series analysis to trade the itraxx???other thing: why not play macro ideas on a daily basis? peace

on cb arb: nowadays in europe pretty much 100% of recent CB issuance has been bought by arb accounts, with a few outright accounts having appeared relatively recently. nobody pretends that CBs are a normal capital markets instrument, issued to real money investors who like the risk profile. the bonds are specifically engineered for hedge funds, with features like dividend pass-thru to make cb arb less risky. sometimes they are issued with guaranteed stock borrow rates and as an arb package including the short stock position! what kind of an "investment" is that?if you think about what is happening it seems crazy. here is the picture up until early 2004: there is a large pool of cb arb hedge funds with capital they need to deploy (after cb arbs took loads of credit risk in 2003 they made money and so investors piled into cb arb due to "historical returns"), and so companies borrow money by issuing CBs to hedge funds who pretty much buy them at fair value or maybe just below. hedge funds charge per-annum management fees and performance fees, and get bad funding rates from prime brokers, who make good money in this game. so companies are ultimately borrowing money from people who invest in CB arb hedge funds, but with massive amounts of friction (fees) in the process. now, at least in europe, there are no longer any accounting or tax advantages to issuing cbs, so the new issue pipeline is going dry. some companies have even repurchased their CBs and replaced them with straight debt to avoid the upcoming accounting headaches (they have to actually account for the conversion option they are short).now cb arbs have had terrible returns (no surprise) and want to lighten up their positions so they can move into other strategies. but they can't! if they sell bonds in any significant size, they will massacre their mark to market. recent price action has been telling: instead of following index vol, CB implied vol has not gone up. if anyone tries to mark up the CBs, their bid gets hit, as so many people want out. it is not a pretty picture.the situation in the US may not be as bad as it is here in europe, where a LOT more than 10% of outstanding issuance is held by cb arbs!

erstwhile. very interesting stuff. thnx.

Erstwhile; my understanding was that many hedge funds wouldnt meet costs on fixed fees only - they often dont have enough cash under management, many need performance fees too?Have you any idea if this is really an issue, or can they afford to milk the investors for poor performance?