U.S. hedge fund performance up in September, S&P says

Date: Thursday, October 14, 2004

Rising energy prices, fed funds rate behind jumps in indices-- Standard & Poor’s says that escalating energy prices and a rising Federal Funds rate sparked U.S. hedge fund performance in September. The ratings agency said in its monthly review that the S&P Hedge Fund Index was up 0.47% in September with all three of the sub-indices ending the month in positive territory. The S&P Directional/Tactical Index finished September up 0.60% with two of its three strategy components exhibiting positive returns. The Managed Futures strategy also posted strong positive returns for the month, up 1.59%, following a long period of flat to negative returns. Many managed futures managers benefited from the rally in oil prices that were caused in part by supply disruptions in Iraq, an active hurricane season in the U.S., increasing demand in Asia, and continuing fears of global terrorism, S&P said. The S&P Arbitrage Index rose 0.44% in September marked by strong performance in the Fixed Income Arbitrage sector, flat returns in the Convertible Arbitrage sector, and slight losses in the Equity Market Neutral sector. "With Fannie Mae battered by investigations into its accounting practices, many investors assumed asset-backed instruments would take a beating, not realizing that these instruments are backed by actual mortgages, not Fannie Mae equity," says Justin Dew, senior hedge fund specialist at Standard & Poor’s. The Convertible Arbitrage sector drifted sideways as neither type of Convertible trading, volatility or credit, produced large gains. Credit spreads remained stable for most of the month. Volatility (as measured by the CBOE Volatility Index) dropped to five-year lows reducing trading opportunities. September returns in the S&P Event-Driven Index were positive as all three of its strategy components, Special Situations, Merger Arbitrage and Distressed experienced gains. “In the energy sector, Special Situations managers were able to capitalize on the restructuring of a few North American oil-related companies’ accounting practices to more accurately reflect oil reserves in friendly countries versus non-friendly countries,” explains Dew. The S&P Equity Long/Short Index produced solid gains during the month, returning 1.67%. “This strong performance came partially as a result of rising equity markets, surprisingly strong in the face of skyrocketing oil prices and a handful of hurricanes. In addition, rising equities markets along with low volatility allowed Equity Long/Short managers to gain on good stock selection,” Dew notes.