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UCITS Hedge Strategy Indices

Date: Friday, July 13, 2012
Author: Bill McIntosh, UCITS Hedge

June shows fractional loss to cap second quarter reversal
UCITSindices(web)Further losses in June extended the drawdown in the UCITS Hedge Index to four consecutive months, but the scale of the loss for the month was a minute 0.01%. It means that the Index closed out the first half of 2012 with a drawdown of -0.64%, including a -1.85% decline in the second quarter. Only the Equity Long/Short Index, the Macro Discretionary Index and the Single Alpha Index (funds with an absolute return mandate but which don’t add alpha on the short side) made gains during June. Equity Long/Short, clinging to the first quarter rally, is the sole strategy to close out the first half in the black, though Macro Discretionary, up a marginal +0.04% in June, is perched near positive territory with a first half fall of just -0.30%.

The first three weeks of June saw a sell-off in risk assets as fears mounted about the Euro zone debt crisis. With political developments at the European Council summit waxing positive in late June, investors took some cautious steps outside of safe havens to invest in equities and commodities. This helped narrow the broad losses recorded earlier in the month.

The price of Brent crude oil flirted with the $100 level by the month-end. Stock market indices recorded gains with the FTSE 100 bouncing nearly 4% in the final trading sessions. Yet traders reported thin volumes, indicating a lack of conviction among equity investors that the market had sufficient momentum to break out of the range bound levels that have endured since 2010. Just after the month end China responded to slowing growth with an interest rate cut.

The Equity Long/Short Index gained +0.37% in June to close the half up +0.59% despite losing -2.44% in the second quarter due almost entirely to a May drawdown of -2.49%. The Single Alpha Index led June gainers with a rise of +1.23% during the month which helped pare its half year drawdown to -1.79%. The absence of short side alpha was most obvious in May when Single Alpha slumped to a loss of 4.2%.

The Relative Value Index fell a fractional -0.7% in June, marking its fourth consecutive monthly decline. At the half year point, the Index was down -0.60%. The Event Driven Index fell -1.32% in June and was the worst performer in the second quarter, showing a drawdown of -4.99% for the period. It ended the half down -1.36% amid specific transaction volatility, the poor performance of several equity IPOs, notably Facebook, and continued pressure on financial institutions. The Macro Systematic Index declined in June by -0.12%, taking its drawdown for the half to -1.49%. Meanwhile, the Multi Manager Index slipped an additional -0.21% during the month to finish the first half of 2012 down -2.31%.

The seven strategy indices reported here represent the bulk of the total universe of funds in the database, while the master index tracks all those funds with hedge fund characteristics as defined by our methodology. In addition, we are also tracking a growing number of Single Alpha funds as part of our data gathering activities. In all, the database is now tracking over 500 funds.

All our indices are comprised of UCITS III compliant hedge funds that are currently reporting to our database. The dominant strategies in the universe are long/short equity, relative value and macro, although we are also now publishing a master index that incorporates the performance of all the funds in the database, apart from absolute return funds and funds of funds.

We publish both equal and asset weighted versions of each strategy index electronically for our database subscribers. In the hard copy editions of The Hedge Fund Journal we are using equal-weighted indices.

The indices have a ‘live’ date of 1 January 2010, although performance as published here is to 29 June 2012. Subscribers to our database will receive index performance data as part of their subscription package, and they are also available via our demo account facility.

To register your fund in the UCITS Hedge database, or to arrange a demo account if you are interested in subscribing, please email Renaud Cohard at renaud.cohard@thehedgefundjournal.com