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October 23, 2011 at 09:47 AM
Credit Suisse recently launched the Equity Market Neutral ETN (CSMN), the first ETN to provide exposure to that strategy in an exchange-traded format.
According to the company, CSMN tracks a market neutral strategy as represented by the HS Market Neutral Index Powered by HOLT.
The index is intended to achieve stable returns while reducing risk by selecting a portfolio of 75 long stocks and 75 short stocks from over 20,000 global equities.
The index uses Credit Suisse’s HOLT stock-selection framework which incorporates factors including value and momentum.
A comparison of the HS Market Neutral Index and the S&P 500 Index’s performance stats for the year ending September 15, 2011, illustrates the strategy’s reduced volatility profile:
| HS Market Neutral Index |
S&P 500 Index |
|
| Average month |
0.24% |
1.33% |
| Best month |
2.22% |
8.76% |
| Worst month |
-1.34% |
-5.68% |
| 1-Year total return |
1.70% |
9.62% |
| Annualized standard deviation |
3.73% |
19.17% |
| Sharpe ratio |
0.42 |
0.40 |
Source: Credit Suisse
The monthly-return correlations between the HS Market Neutral Index and major indexes over the year ending September 15, 2011 were low, which supports the diversification claim:
| Barclays Capital U.S. Aggregate Index |
MSCI Total Return EAFE® Index |
S&P 500 Index |
TOPIX Index |
| -0.141 |
0.362 |
0.306 |
0.177 |
According to Credit Suisse’s fact sheet, the index reflects the difference in return between two equally weighted constituent sub-indices, the Long Total Return Index (the “long index”) and the Short Total Return Index (the “short index”).
