Funds of funds got off to a solid start in 2006, with the markets running on the momentum of end-2005 performance. The benchmark Eurekahedge Global Fund of Fund Index rose a handsome 2.8% in January (as compared to returns of 1.7% and 2% in November and December 2005, respectively). Equity long/short (+3% and +10.7%) and multi-strategy (+2% and+7.4%) players were the better performers for December and all 2005.
Asian funds of funds returned 2.7% for the month, whereas their North American (2.8%), European (3.9%) and emerging market (5.9%) peers have all fared better. Continued optimism regarding the pricing of key commodities and the improved debt outlook in the Latin American markets, and robust economic and corporate data in the eastern European markets, have contributed to the stellar performance of funds of funds focusing on the emerging markets. North American funds of funds posted their best monthly returns in over five years, in January.
With the exception of fixed income funds (+1.7%), all strategies generated returns upwards of 2% for the month. The best performers for the month were funds focusing on equities (3%) and commodities (3%), and multi-strategy funds (2.8%). The latter benefited from healthy gains in conventional hedge fund and fund of fund strategies. More specifically, equity long/short and multi-strategy funds had their best run in the emerging markets (6.8% and 5.7% respectively), in a month that saw sharp rallies in the regions’ equities. Asian long/short funds fared very well for the month (+3.1%) but could not match up to their emerging market peers.
January was good for funds of funds, with bullish markets in global equities and key commodities, more liquidity flowing into the emerging markets, and positive earnings and economic data in most regions. While it is only prudent to expect short-term corrections in such an environment, the long-term outlook for 2006 looks bright. Index movement based on funds reporting in February suggests a positive trend in the better performing strategies and regions.
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