Hedge funds extend summer gains on euro optimism

Date: Wednesday, September 12, 2012
Author: Emily Perryman, HedgeWeek

Hedge funds posted gains for the third consecutive month in August, as the Euro advanced on optimism for a resolution of the European sovereign debt crisis.

The HFRI Fund Weighted Composite Index posted a gain of 0.8 per cent for the month, with leadership across equity hedge, event driven and relative value strategies, with each of these also posting their third consecutive monthly gain, according to HFR.

Equity hedge funds had the strongest contribution to overall industry performance, with the HFRI Equity Hedge Index gaining 1.2 per cent for the month. Gains were broad-based across the strategy, with quantitative directional, fundamental value and fundamental growth all gaining between 1.25 and 1.6 per cent. Other EH strategies had positive contributions to August gains, with equity market neutral, energy and technology-focused funds gaining between 0.6 and 1.2 per cent; short bias funds detracted from performance.

Event driven funds posted gains similar to those of equity hedge, with the HFRI Event Driven Index gaining 1.1 per cent. ED gains were led by the equity-sensitive special situations and credit-sensitive distressed sub-strategies, with both gaining over 1.0 per cent in August.

Fixed income-based relative value arbitrage posted a gain despite rising yields, with spread tightening and effective hedging contributing to the HFRI Relative Value Index gaining 0.9 per cent; the August gain is the eighth in the last nine months and RVA has posted positive performance in 37 of 44 months since December 2008. Relative value sub-strategies of volatility, yield alternatives and asset-backed had significant contributions to RVA performance.

Macro hedge funds posted a decline for the month, partially offsetting strong July performance, with the HFRI Macro Index declining by 0.16 per cent. Macro performance also reflected dispersion across various sub-strategies; the HFRI Macro: Systematic Diversified/CTA Index declined by 0.9 per cent and currency strategies declined by 0.6 per cent on the Euro advance; however, macro discretionary strategies gained over 1.0 per cent while commodity funds gained 1.9 per cent.

Fund of funds advanced for the second consecutive month, with the HFRI Fund of Funds Composite Index gaining 0.64 per cent in August. Emerging markets hedge funds also had positive contribution to industry performance, with the HFRI Emerging Markets Index gaining 1.06 per cent.

“Hedge funds were tactically positioned for the equity, fixed income and commodity developments in August, with many funds having strategically increased equity net exposure, reduced short Euro currency positions and appropriately hedged fixed income exposure through mid-summer,” says Kenneth J. Heinz, president of HFR. “While funds remain cognizant of the potential for an adverse market reaction in the ongoing European banking and sovereign debt crisis, recent developments have been constructive. As a result, hedge funds have modified defensive positioning to consider a continuum of positive and negative scenarios, increased optionality and volatility implications of the Euro sovereign debt crisis, as well as a broadening of focus to include the US elections and Chinese growth considerations.”