CBOE and Eurekahedge announced the launch of four new benchmark indexes that measure the performance of hedge funds that employ volatility-based investment strategies. Eurekahedge is a Singapore-based hedge fund research and data collection company. Values for the new indexes are available on websites of CBOE and Eurekahedge. The four new indexes, the first of their kind, were created to meet the demands of institutional hedge fund investors seeking benchmarks that measure the performance of distinct volatility-based strategies.
OVERIEW OF THE FOUR NEW INDEXES
The CBOE Eurekahedge Volatility Indexes are equally weighted among the constituent funds and most have been reconstructed by Eurekahedge since 2005 using a rules-based methodology (CBOE Eurekahedge Tail Risk Index is reported from 2008). The combined assets under management (AUM) of the constituent funds exceed $50 billion as of June 2015.
Below are descriptions of the CBOE Eurekahedge Volatility Indexes. Please note that the number of funds within the indexes can vary throughout the month as funds disseminate returns, and the reporting of returns by hedge funds is voluntary.
- CBOE Eurekahedge Short Volatility Index (Bloomberg Ticker: EHFI450) -- The short volatility index is an equally weighted index of 15 constituent funds designed to provide a broad measure of the performance of underlying hedge fund managers who take a net short view on implied volatility with a goal of positive absolute return. The strategy often involves the selling of options to take advantage of the discrepancies in current implied volatility versus expectations of subsequent implied or realized volatility.
- CBOE Eurekahedge Long Volatility Index (Bloomberg Ticker: EHFI451) -- The long volatility index is an equally weighted index of 10 constituent funds designed to provide a broad measure of the performance of underlying hedge fund managers who take a net long view on implied volatility with a goal of positive absolute return.
- CBOE Eurekahedge Relative Value Volatility Index (Bloomberg Ticker: EHFI452) -- The relative value volatility index is an equally weighted index of 39 constituent funds designed to provide a broad measure of the performance of underlying hedge fund managers that trade relative value or opportunistic volatility strategies. Managers utilizing the strategy can pursue long, short or neutral views on volatility with a goal of positive absolute return.
- CBOE Eurekahedge Tail Risk Index (Bloomberg Ticker: EHFI453) -- The tail risk index is an equally weighted index of 8 constituent funds designed to provide a broad measure of the performance of underlying hedge fund managers who specifically seek to achieve capital appreciation during periods of extreme market stress.
PERFORMANCE OF INDEXES
Alexander Mearns, CEO of Eurekahedge said, "In 2008 the global stock market [MSCI AC World Index (Local) Index] went down 43% but long volatility funds were up 46%. After 7 years without a major correction in developed markets, investors are increasingly looking at volatility and downside protection, so to that end Eurekahedge are delighted to have teamed up with Chicago Board Options Exchange to offer this new suite of indices to address investors’ demands."
Tuesday’s press release by Eurekahedge noted that --
“The CBOE Eurekahedge Long Volatility and Tail Risk Indices were up 45.81% and 12.58% respectively in 2008, while underlying markets floundered with the average hedge fund losing 9.77% during the year. A similar result was evident in 2011 when the Eurozone debt crisis came to the fore over fears that a Greek exit was imminent, with the average hedge fund declining 1.88% during the year. In contrast, long volatility and tail risk funds were up 12.83% and 7.50% respectively. In the relative calm that has since ensured in the markets on the back of active and coordinated intervention by various central banks, one volatility strategy in particular has been quite profitable. The CBOE Short Volatility Hedge Fund Index has consistently posted positive returns since 2012 and has outperformed the main Eurekahedge Hedge Fund Index consistently over this period. However, one volatility strategy has produced results that have largely been agnostic to the overall direction of volatility. With the exception of 2014, the CBOE Eurekahedge Relative Value Volatility Index has consistently generated positive returns since 2005 with an annualised return of 10.33% afforded at an annualised volatility of only 3.75%.”
The press release by Eurekahedge also presented this table -
For more information on the four new indexes, including a list of funds in each index, performance data and detailed descriptions of index methodology, please visit www.cboe.com/Eurekahedge.