Poor results dominate
This has not been a vintage year to date for hedge fund managers, though industry analysts are suggesting that the recent slump is over. Certainly, if we look at individual strategies, there are plenty of bright spots. In June, 10 of the 15 individual strategies in the Van Global Hedge Fund Index were positive. Distressed Securities was top performer, netting a 2.0% gain, followed by Value with a 1.4% net return. Income and Aggressive Growth tied for third place, each rising 1.0% net. The worst performing strategy was Futures, which lost -2.9% net.
Hedge funds have suffered month to month declines in April and May and June. Hedge Fund Research, performance data for June shows a loss of 0.17% by hedge funds tracked by the HFR index. This is partly attributed to a rise in the US dollar and high volatility in the global equity exchanges but must also be attributable to structural factors brought about by the strong net inflows to hedge funds. The year-to-date return of hedge funds captured in the HFR Global index stands at -0.27% for 2004.
The Van Global Hedge Fund Index of 1400 funds rose 0.6% net of fees in June, following losses in April and May. Among broad strategy groups, Long/Short Equity was the main beneficiary of the market’s upswing in June, averaging a 1.1% net gain. However, that figure lags the S&P 500’s 1.9% June return or the average US equity mutual fund’s 2.1% gain for the month. As expected, short selling did not do well in the face of widespread equity gains, although the worst performing strategy in June was futures, which lost -2.9% net. Convertible arbitrage funds sustained uncharacteristic losses for the second straight month, averaging a -1.1% net return in June.
For the year to date through June, the Van Global Hedge Fund Index has earned 2.2% net. In comparison, the S&P 500 and Average Equity Mutual Fund have gained 3.4% and 3.5%, respectively. The best performing of Van’s four strategy group indices for June was the Long/Short Equity Group Index, which gained 1.1% net. The Market Neutral Group Index, largely weighed down by Convertible Arbitrage funds, was up 0.2% net. The Specialty Strategies Group Index was flat while the Directional Trading Group Index posted a net loss of -1.7% for the month. The Directional Trading Group includes Macro, Market Timing and Futures strategy funds. For the year to date, the Market Neutral Group has performed best, gaining 2.7% net, followed by the Long/Short Equity Group, which has returned 2.4% net. The Specialty Strategies Group has risen 0.9% net over the first half of 2004 while the Directional Trading Group has lost -2.2% net.
Funds which generally employ systematic trend-following or counter-trend-following trading programs have fared poorly recently, in part due to the changing interest rate environment. Also seeing losses in June were Short Selling, Market Neutral Arbitrage, Macro and Emerging Markets. Among the four arbitrage sub-strategies tracked by Van, Fixed Income Arbitrage was the sole winner, gaining 0.7% net. Merger Arbitrage was flat, while Statistical Arbitrage and Convertible Arbitrage were down.
The accompanying table shows the relative performance of the main hedge fund style strategies according to data gathered by Eurekahedge.