Volatility brought misery and joy in 2011

MiseryJoyIndex providers have released their annual set of figures for stock market performance and it can be seen just how important volatility was for returns in 2011.

Investment strategies designed to cope with volatility put in a strong performance, while volatility was partly to blame for certain traditional indices falling below their 2010 closing levels and for hedge funds seeing their second worst year on record.

The MSCI ACWI [All Country World Index] Minimum Volatility Index—an index based on the minimum variance strategy that targets stocks with lower volatility —yielded a positive return of 2.42%. The more basic MSCI ACWI, which is not based on a volatility strategy, lost 9.78%.

Two other comparable MSCI indices also illustrate the importance of volatility. The MSCI World Minimum Volatility Index returned 4.27% year-to-date 29 December 2011, in contrast to the MSCI World Index return of -8.01 %.

Meanwhile, Eurekahedge, a hedge fund data provider, said its Eurekahedge Hedge Fund Index had returned -4.1% by year’s end. While most hedge funds witnessed gains through the first six months of 2011, the heightened volatility in worldwide markets during the second half of the year pushed many hedge funds into the red, the firm said.

The S&P Global BMI [Broad Market Index] was down 10.07% in 2011 as 21 markets lost at least a fifth of their market value. S&P Indices said the “devastation” was even worse if the minor US 0.82% decline was excluded. The Global Ex-US index saw a 16.64% loss for the year.

According to the same firm, emerging markets lost 22.92% and developed markets lost 8.19% - or 14.88% excluding the US.

S&P Indices forecasts that volatility will continue to be a factor in markets.

“The bottom line is the market is expected to continue going nowhere fast, with short-term volatility, and low confidence in projections,” the firm said today.

©2012 funds europe