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Canadian hedge funds outperforming indices

Date: Wednesday, November 17, 2010
Author: Jonathan Ratner, Financial Post

Canadian hedge funds continued to outperform North American equity markets in October.

The Scotia Capital Canadian Hedge Fund Performance Index climbed 3.69% on an asset weighted basis and rose 2.8% on on an equal weighted basis. That compares to a 2.49% gain for the S&P/TSX composite index and a 2.7% improvement for the S&P 500.

On a year-to-date basis, the index is up 13.18% on an asset weighted basis and 8.99% on an equal weighted basis, versus 7.92% for the TSX and 2.71% for the S&P 500.

As broader capital markets continued to rally in October, driven by stable macroeconomic indicators, generally favourable third quarter earnings and expectations for a continued low interest rate environment, risky assets remained on investors’ radars. Scotia Capital also noted that commodities rallied against weakness in the U.S. dollar, despite some volatility in the wake of China’s decision to raise interest rates for the first time in three years. Low interest rates produced further strength in gold and other precious metals, while oil and energy-related commodities also rallied.

Most Canadian hedge funds benefitted from the market rallies in October, Scotia said in its monthly report.

“The best performers were those with nimbler strategies who took advantage of the markets’ upswing by way of selective stock-picking and expressing macro views,” Scotia said. “In aggregate, Canadian hedge fund managers continue to maintain a relatively cautious stance and low net exposures.”

The Scotia Capital Canadian Hedge Fund Performance Index includes 43 open and closed Canadian-domiciled hedge funds with at least $15-million in assets under management and a minimum 12-month track record.