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Eurekahedge Hedge Fund Index returns 1.2% for July

Date: Wednesday, August 8, 2007
Author: Opalesque.com

Eurekahedge Hedge Fund Index returns 1.2% for July, Asian, emerging markets doing particularly well (3.9%)

Early reporting funds for July 2007 suggest a decent month for hedge funds, with the composite Eurekahedge Hedge Fund Index returning 1.2%*, and Asian as well as emerging markets allocations doing particularly well (3.9%). This performance was in spite of turbulence in the underlying markets towards the month’s close, which in turn was largely owing to rising risk aversion as weakness in the US mortgage markets spread into other asset classes. Credit spreads widened dramatically and major currencies such as the US dollar and euro declined sharply, causing a major selloff in the equity markets.

Amidst these market movements, long/short equity managers (1.6%), particularly those allocating to emerging Asian and Latin American markets, did well as many Asian equities [such as China H Shares (11.2%), South Korea (11%) and Thailand (13%)] finished the month strongly positive. Arbitrage (2.9%) and multi-strategy (2%) funds also fared well as the heightened volatility presented profitable short-term opportunities in bond, equity and FX markets.

*Based on 27.68% of the funds reporting their Jul-2007 returns as at 07-Aug-2007.

Barclay Hedge Fund Index gains 0.62% in July, ratio of winners to losers dropped to 55/45 versus approximately 80/20 for first six months

Despite concerns over losses in the sub-prime mortgage industry, hedge funds gained 0.62% in July, according to flash estimates from the Barclay Hedge Fund Index. “There have been some well-publicized losses among a few high-profile funds that invest in sub-prime mortgages,” says Sol Waksman, founder and president of The Barclay Group. “Those losses highlighted weaknesses in the fixed income sector and sparked a wave of selling in equity markets that sent stock prices into the loss column for July.”

  Eleven of Barclay's 18 hedge fund indexes gained ground in July. The Equity Short Bias Index jumped 6.56%, Emerging Markets rose 3.19%, Pacific Rim Equities gained 1.67% and Technology was up 1.66%. “Although we're seeing more hedge fund losses this month, the bottom line is that the overall hedge fund index and fund of funds index are positive once again. Except for the handful of funds that blew up, the sky is not falling," says Waksman.

All of Barclay's 18 hedge fund indexes are up for the year, ranging from a 2.12% gain for the Equity Short Bias Index to a 16.46% gain for the Emerging Markets Index. After seven months, the Barclay Hedge Fund Index has returned 8.05%.

“This is the 13th consecutive profitable month for hedge funds. However, the ratio of winners to losers this month has dropped to 55/45 versus approximately 80/20 for the first six months of the year,” says Waksman.

  Six sectors lost ground in July. The Healthcare and Biotechnology Index fell 2.48%, Merger Arbitrage lost 1.59%, and the Event Driven Index was down 0.66%.   Click here to view ten years of Barclay Hedge Fund Index data

Dow Jones: July weakest month in 2007, only three of six strategies positive

With only three of the six strategies covered by Dow Jones Hedge Fund Indexes posting net-of-fees gains, July was the weakest month in 2007 for the performance of hedge fund strategies.

  Convertible arbitrage was gained 0.26% for the month and is up 2.67% for the year. Distressed securities and event driven returned -1.82% and -1.12% for the month, but with returns of 4.75% and 5.71% are still up for 2007. Equity market neutral returned -0.48% in July, dropping its performance to 1.96% for the year.

Merger arbitrage came in strong with a July return of 2.45% and moved into the top performing spot for the year. Its cumulative year-to-date return of 13.27% surpassed that of equity long/short, which posted a positive July return of 0.58%, pushing its return to 11.93% for the year.

On a float-adjusted basis, the Dow Jones Wilshire 5000, the only broad measure of the domestic equity market, lost -3.40% (-3.38% on a full-cap basis) in July decreasing its YTD return to 3.90% (3.92% on a full-cap basis). The fixed income asset class, as measured by the Dow Jones Corporate Bond Index, was up 0.20% this month and its cumulative return is 1.15% for the year.