In December, a wave of optimism dominated the stock market. The resolute rise of the S&P 500 index (+6.68%) followed a remarkable drop in implicit volatility (17.8%) of nearly a quarter. Over the year, the S&P 500 index grew by 15.06% to return to its level of June 2008, before the mid-2008 crash.

On the fixed-income market, after significant losses in November, a morose situation continued to prevail. Gloom persisted for regular bonds (-1.43%) and the Lehman Global Bond index (-1.80%), which both registered their worst performance for 2010. On the other hand, riskier investments in convertible bonds (+4.33%) benefited from a remarkable rebound. With its best score since May 2008, the commodities market (+9.72%) managed a fourth consecutive month of profitability and, not unlike the stock market, returned to the level it reached before the 2008 crash. The dollar ended the month with a loss (-2.09%). The rebound in convertible bonds and the renewed increase in the credit spread (+0.35%) pushed the Convertible Arbitrage strategy (+1.42%), back to profitability after the previous month’s short incursion into negative territory. Over the year, Convertible Arbitrage (+12.23%) remained the best-performing hedge fund strategy (after Distressed Securities). Taking advantage of the persistent growth in the stock market, all equity-oriented strategies scored a fourth consecutive month of profits. The Long/Short Equity (+3.56%) and Event Driven (+2.97%) strategies ended the year with rarely attained monthly performances. The Equity Market Neutral strategy managed a naturally moderate yet sustained gain (+1.05%). Overall, the Funds of Funds strategy did well (+1.99%) in December, but remained behind most other strategies. In 2010, although none of the hedge fund strategies outperformed the S&P 500 index over the year, all of them (except Funds of Funds) did outperform over the past three years, which included the 2008 crisis.