Hedge funds reined in their losses in July. The Dow Jones-AIG Commodity index fell 12%, while the MSCI World index finished the month down 2.5%. The Eurekahedge Hedge Fund index declined by a relatively modest 2.5% on the month, with all regional and strategic mandates finishing the month in the red.

All FoF strategies finished down. Arbitrage and relative value FoFs turned in losses averaging 1% and 1.8% . Long/short equity and event driven funds of funds were down 2.9% and 1.9% respectively, affected by the volatility and sudden movements across the equity markets. Many funds were not positioned in anticipation of the bounce-back that equities saw around mid-month. Event driven hedge funds made some gains from some corporate activity during the month.

Fixed income multi-managers fared better (-0.5%), as underlying hedge funds benefited from trades in the bond markets. Distressed debt FoFs were down 2%, as most hedge funds of the strategy also turned in negative returns.

CTA and macro FoFs managers were down 3.8% and 2.3% respectively, as hedge funds of both strategies were hit hard by the sharp (and sudden) down turn in commodity prices during the month. Multi-strategy funds of funds were down 2.5%, as exposure to all hedge fund strategies proved loss-making.

European funds of funds posted losses averaging 3.3%, largely due to the poor performance of hedge funds allocating to eastern Europe and Russia (-9.9%). Equity markets in the region were hit by the sharp fall in crude oil prices; the MSCI Eastern Europe index shed 10.8%. Visible signs of an economic slowdown across Europe affected regional markets. 

North American multi-managers were down 2.9%, as regional hedge funds (-1.1%) were affected by the unexpected sharp movement in the commodity and equity |

Asia-pacific-focused FoFs registered losses averaging 1.7%, while an average Asian hedge fund lost 1.5% on the month.

FoFs investing in Japanese hedge funds recorded the lowest negative return (-1.2%), even outperforming hedge funds allocating to the country (-1.8%).

Emerging market focused funds of funds were down 2.7%, as hedge funds allocating to Latin America and eastern Europe and Russia were impacted by marked equity draw downs (due to a sharp correction in commodity prices) in their respective regions.

For the latest monthly returns and 2008 returns for the Eurekahedge hedge fund and fund of funds indices please visit www.eurekahedge.com/indices or contact editor@eurekahedge.com to comment on this report. Rajeev Baddepudi is hedge fund analyst with Eurekahedge in Singapore