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RBC Hedge Index Returns 10.6% in 2006

Date: Tuesday, January 16, 2007
Author: Jacob Bunge, Financial Correspondent, Hedgeworld.com

NEW YORK (HedgeWorld.com)—When the dust settled, convertible arbitrage emerged as the leading strategy for 2006 in the RBC Hedge 250 Index, returning 15.16% for the year in something of a comeback story.

Provided the result isn't revised to any great extent, convertible arbitrage's performance in the last 12 months can be held up as an example to nay-sayers who declared the strategy dead after 2005, a year in which many convertible arb managers lost money and saw significant outflows Previous HedgeWorld Story.

For December, convertible arbitrage funds tracked by the RBC Hedge index gained 1.3%, improving on its November return of 0.67%. Since the index's inception in July 2005, convertible arb funds have returned 20.33%.

While convertible arbitrage funds went a long way toward redeeming themselves in 2006, multi-strategy funds have seen their own reputation similarly tarnished by the fall of the mega multi-strategy fund Amaranth Advisors LLC in September. As far as multi-strategy funds in the RBC index go, however, performance is not an issue—those managers earned the index's second-highest returns for the year, 14.89%, after turning in back-to-back gains of 1.64% in November and December.

December saw the broad RBC Hedge index maintain its solid fourth-quarter performance with a 1.41% return for the month, which helped it gain a total of 10.64% for 2006 altogether. While still below the returns of most broader equity markets, the RBC Hedge index's late surge helped out quite a bit—in September, year-to-date returns sat around 5.69% Previous HedgeWorld Story.

Riding those equity markets were long/short hedge funds, which posted the RBC Hedge index's third-best result for the year, 13.6%. Long/short managers earned 1.44% in December, following a confirmed 2.16% return in November, and the strategy remains the highest earner since the RBC index's inception, with a total return of 23.24% over the last year and a half.

Among event-driven hedge funds, the mergers and special situations strategy increased 1.94% in December and finished 2006 with a 13.14% return, while credit funds increased 1.5% for the month and returned 12.3% for the year. Managed futures funds put up the biggest numbers in December, 2.07%, and closed out the year with an 11.47% year-to-date result.

That was about it for the good news. Middling-to-meager returns could be found from fixed-income arbitrage and equity market neutral, which returned 6.08% and 3.6%, respectively, in 2006. Macro, the year's beleaguered strategy in the RBC index, managed to finish the year in positive territory with a 1.38% return. The picture would have been worse but for increases of 1.17% in December and 0.71% in November.

Approximately 250 hedge funds are picked by RBC Capital Markets from a universe of 5,635 funds to create the investable RBC Hedge Invest 250 Index. Since inception, the firm noted that the RBC Hedge index has posted an annualized net return of 10.76%, while rival investable indexes averaged 7.43%, and non-investable indexes 12.63%.