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Hedge Funds Withstand Turbulent February: Early Reports

Date: Thursday, March 8, 2007
Author: Chidem Kurdas and Maggie Shea, HedgeWorld

NEW YORK (HedgeWorld.com)—Hedge funds that reported their February performance to the MSCI and Greenwich databases had positive returns as a group, despite the sharp correction in equity markets late in the month.

The February return for the two indexes was similar, with the MSCI Hedge Invest Index up 0.53% and the Greenwich Global Hedge Fund Index up 0.58%. Year to date, MSCI gained 2.08% and Greenwich 1.78%. MSCI turned in a 1.55% performance in January

The MSCI Index lost 0.83% on Feb. 27, the biggest single-day loss for the month. The MSCI index's plunge occurred not only on February's last day for recording actual performance results for the month, but also on the day Chinese equity markets saw their biggest price drop in 10 years, which spurred dramatic global stock market losses Previous HedgeWorld Story. In contrast to hedge funds, equity indexes in general are down—the S&P 500 has lost 1.6% year to date. Equity long/short is the largest strategy segment among hedge funds, and overall industry returns correlate highly with the stock market. But some hedge funds were expecting the recent correction and prepared for it Previous HedgeWorld Story.

Certain strategies performed particularly well despite the equity downturn. MSCI's event-driven index is up 3.2% for February and about 5.3% for the year. The long-bias index has made 2.46% year to date and was the largest positive contributor to the performance of the MSCI index, in part because it has a larger weight—25%—than other strategies.

"Hedge funds' February gain demonstrates their diversification benefits for investors seeking reduced systemic risk in their portfolios," said Greenwich general manager Ben Rossman, in a statement. He said roughly 70% of hedge funds reporting thus far are positive for February.

However, some hedge funds have not yet reported to index providers (and a sizable group does not report to any database). Data for a larger sample of funds is expected later in March.

While hedge funds do not so far show much damage from the equity stumble, trend-following futures funds were hit hard by choppiness in commodity markets. The MSCI systematic trading index lost 2.39% in February.