After an extended spell of benign to rising trends continuing into early-May, global financial markets witnessed severe corrections in the second week of May as heightened inflation worries, the lack of clear guidance from the Fed and a weakening US dollar, frayed investor.
Market movements were characterised by volatility and profit-booking, and to some extent, a flight to safer investments. Consequently, directional strategies such as equity long/short (-2.7%) and macro
(-1.7%), and multi-strategy funds
(-1.8%) bore the brunt of the sharp reversal in trends. The composite Eurekahedge fund of funds index shed 1.9% for the month, with almost all the strategy and regional sub-indices in negative territory.
Opportunistic and volatility plays were the exception, but only barely so, registering nearly flat returns at about 0.1% for the month. Contrast this with performance during the months leading up to May: the composite index is up 4.7% for the year to date and all the component indices have gained upwards of 4%, even after taking May’s fall into account.
Examining regional performance, North American funds have actually turned in the best (or rather the least negative, at -1.4%) returns, in a month that saw all the regional fund of funds indices in negative territory.
Returns of CTA managers cushioned the blow for the broader North American index.
Equity long/short (-1.7%) and multi-strategy (-1.5%) funds, on the other hand, both underperformed the broader regional index, affected by the size of the pullback in equities.
European equities were no exception to the global equities downtrend in May (the MSCI Europe Index was down 5.7%), and the FTSE 100, the CAC 40 and the DAX indices all registered losses of about 5% each.
However, Emerging Europe rendered the most damage to equity long/short funds in the region, with Eastern European equities shedding 16.6% on average.
For the latest May 2006 returns for the Eurekahedge hedge fund and fund of
funds indices please visit Rajeev Baddepudi is hedge fund analyst with Eurekahedge in Singapore.