Barclay Hedge Fund Index down 8.04 per cent as two-month losses approach 15 per cent

Hedge funds dropped by an average of 8.04 per cent in October, according to the Barclay Hedge Fund Index compiled by Fairfield, Iowa-based BarclayHedge, and have lost 14.44 per cent of their value during the past two months.

'The 'Great Deleveraging' continued in October,' says BarclayHedge founder and president Sol Waksman. 'Investors as well as hedge funds and banks continued selling in order to reduce risk exposure in their portfolios and raise cash.'

'The result has been a significant year-to-date drop in equity prices, with US markets down 30 percent, other developed markets falling 40 percent, and emerging markets losing as much as 50 percent of their value.'

The Barclay Emerging Markets Index was down 15.83 per cent in October, and has lost 25.11 per cent in just two months. 'It's estimated that US investors hold some USD5trn in foreign equities,' Waksman says. 'Those holdings are now being liquidated.'

Convertible arbitrage dropped 12.22 per cent, and has lost 20.45 per cent in September and October. 'The short sale ban created an impossible situation for convertible arbitrage funds,' Waksman says. 'Selling stocks short is a key factor in the viability of the strategy.'

The only successful strategy in 2008 has been selling the equity market short. The Barclay Equity Short Bias Index had another strong month, gaining 17.21 per cent last month.

'While equity long bias funds have lost 25 percent of their value in 2008, equity short bias funds have gained 43 percent,' says Waksman. 'The key factor in 2008 has been which side of the market you trade. It's been tough for traders on the long side, whereas short traders caught a big wave.'

So far this year the Barclay Hedge Fund Index has lost 19.30 per cent, compared with 32.84 per cent for the S&P 500. The Barclay Fund of Funds Index lost 5.21 per cent in October, and is down 17.33 per cent in 2008.

BarclayHedge, formerly known as the Barclay Group, was founded in 1985 and tracks more than 6,700 hedge funds, funds of hedge funds, and managed futures programmes for its 18 proprietary hedge fund indices and eight managed futures indices, used as performance benchmarks by clients including institutional investors, brokerage firms and private banks