The composite Eurekahedge Fund of Funds index rose a robust 1.7% for the month of April, bringing the 2007 year-to-date returns to 4.7%. The month's fund of funds returns were also broad-based with almost all regional and strategic allocations returning upwards of 1%.
In the bond and interest rate markets, US bond prices had a difficult month, plunging initially given strong US employment and producer inflation data, and rising towards month-end on the back of less-than-expected consumer prices data and expectations of a Federal Reserve interest rate cut. European bond prices, on the other hand, went south for the month given a hawkish European Central Bank (ECB).
In the energy markets, the month's overall price rise masked choppy movement intra-month, as Iran-related geo-political tensions eased but those pertaining to violence associated with the Nigerian presidential election pushed oil prices higher; crude oil prices rose to $66 per barrel by month-end. That said, the commodity markets did witness some clear trends - gasoline prices surged on news of historically low inventories ahead of the summer, while record imports from China spurred copper prices to seven-month highs.
Currency trading was profitable during the month. The euro strengthened to record highs amid hawkish signals from the ECB and strong European export and consumer confidence data.
The month's best returns came from CTA/managed futures funds (+2.3%), with gains coming from both trend-following and discretionary trading.
Other better performing strategies included equity long/short (+1.8%, with most gains coming from the long book), global macro (+1.8%, capturing directional trends in the global bond and energy markets as well), event driven (+1.7%, as the total value of announced merger deals from about $420bn in March to over $610bn), and by definition, multi-strategy (+1.8%).
Distressed debt allocations posted decent returns as well (+1%) in a high-yield market that returned 1.4% for the month and where improving credit quality and strong new issuance activity (over 30 new issues were priced in April for a total value of close to $12bn) afford profitable plays.
April returns from regional fund of fund allocations were strong across the board, although the month's equity rally was stronger in the emerging markets - notably in China, where overriding bullish sentiment prevailed and in Europe given positive consumer confidence and exports data. This was broadly reflected in the regional performance of funds of hedge funds during April.
While funds of funds allocating to North America (+1.8%) and Europe (2.1%) closed April strongly up, the month's best returns came from emerging market funds, which rose an impressive 3.2% on the back of strongly bullish trends in key economies such as China, India, Korea and Brazil.
Rajeev Baddepudi is hedge fund analyst with Eurekahedge in Singapore
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