Convertible Arbitrage Hedge Fund Strategy

Convertible Arbitrage Strategy

Convertible Arbitrage Strategy Hit Hardest in August Turmoil

Many hedge funds are still reeling from last month's market turmoil.  Some strategies were typically hit harder than others during the volatility.  Convertible arbitrage was the strategy punished most in August according to recent data. 
Hedge funds were impacted by a severe downward swing in August, when the S&P 500 index suffered its heaviest losses since May 2010, dropping 5.43 %.
Jumpy investors exacerbated the problem, sending the markets’ implicit volatility to 31.6 %, its highest level since June 2010.
Fixed income markets were not spared either, with convertible bonds dropping by 4.49% for a fourth consecutive month of losses.
The EDHEC-Risk Institute, which tracks the performance of hedge fund vehicles, reports that convertible arbitrage was the fund strategy punished most by the ‘plummeting convertible bonds and shrinking credit spread’.
Convertible arbitrage involves the simultaneous buy-up of convertible securities and the short sale of the same issuer’s common, or corporate equity, stock. Source

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