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Credit Suisse/Tremont Hedge Fund Index to finish up 1.29 per cent in April

Date: Monday, May 11, 2009
Author: Hedgeweek.com

Early estimates indicate the Credit Suisse/Tremont Hedge Fund Index will finish up 1.29 per cent in April, based on 55 per cent of assets reporting.

Difficult macro data such as the International Monetary Fund's forecasts for USD4trn in global write-downs over the next two years (two thirds in banks), along with reports of global GDP contractions of 6.3 per cent in 4Q 2008 (and nearly as severe in 1Q 2009), did not dampen the optimism in global equity markets in April, according to Credit Suisse/Tremont.

Europe's markets rose by a record 12.9 per cent, a monthly record since the start of the FTSE Eurofirst 300 in 1997. Most stock markets worldwide had similar rallies, with particularly strong performance in the BRIC countries.

Although a number of long/short equity managers added to their long positions to seek to harvest the upside of the rallies, many managers maintained their beta exposures at a relatively low level and remained defensively positioned, resulting in lower returns relative to equity indices. The threat of a global influenza epidemic and the Chrysler bankruptcy did not appear to impede the rallies.

Convertible arbitrage is extending its winning streak to four months with a strong 5.1 per cent performance, as it continued its recovery from the severe devaluations in the last quarter of 2008. The strategy remains the top-performer in the Index year-to-date in 2009.

Fixed income arbitrage is also looking to post a strong month at 2.8 per cent, with the macro environment allowing for carry trades, which in 4Q 2008 were derailed as traditional relationships deteriorated. Volatility dropped for equity markets generally, but not for fixed income which, for example, saw European corporate credit spreads fall by approximately 50 basis points. Other relative value contributors were curve steepening biases, mortgage books, and swap normalization trades.

Global macro had its first negative performance in six months, as quant managers struggled, while diversified managers posted marginally better performance. Overall, managers avoided directional risk and traded tactically in commodities, currencies (short Euro positions paid off), sovereign yield curves, and, to a lesser extent, equities.

Hedge funds with exposures to commodities were positively impacted overall by improving commodity markets with cotton rising to its highest levels since October and crude oil rising for a third monthly gain. Copper rose by 9.7 per cent for the month, resulting in four months of consecutive gains, in part due to demand in China driven by the country's USD586bn stimulus program. On the other hand, gold dropped as risk appetite for equities and other risky assets rose.