Hedge Funds Down, But Outperform S&P

Date: Wednesday, November 7, 2012
Author: Katya Wachtel, Reuters

Hedge funds lost money for the first time since May last month, hurt by exposure to the broader stock market, which also sank in October.

On average hedge funds fell 0.34 percent in October according to a group of early-reporting managers to hedge fund tracking firm eVestment|HFN, while the S&P 500 fell 1.85 percent during the month.

Hedge funds are up about 2.8 percent for the year, while the S&P 500 has recorded gains of about 14.3 percent.

It was another positive month for credit-focused managers, whose funds rose 0.85 percent on average and have gained almost 10 percent this year. Many credit managers have made money this year by betting on mortgage-backed securities and high-yield "junk" bonds, which have broadly seen their value rise over the past 10 months.

Pine River's Fixed Income Fund rose 2.32 percent through Oct. 26, according to data from HSBC private bank. That almost $3.5 billion fund is now up 31.55 percent for the year. A smaller Liquid Mortgage Fund managed by Pine River is up more than 28 percent for the year through Oct. 26.

Those early-reporting funds focused on investing in mortgage related securities added more gains in October, leading to yearly gains of almost 17 percent. Mortgage strategies have recorded gains every month since November last year.

Early reporting equity-focused funds gained 0.45 percent in October, though eVestment|HFN cautioned with the "broad-based decline in developed equity markets during the month ... as more equity strategies report, this figure will likely move lower."

Losing strategies in October included those that specialize in investing in commodities and managed futures, "in step with the extensive declines across the commodity price spectrum, and with strength in the euro vs U.S. dollar," eVestment said in its statement.

Among those funds that bet on stocks, those with large exposure to the technology sector were battered as they lost over 7 percent in the month, but stock-pickers got a boost if they had large exposure to emerging markets and financials, eVestment said.

Daniel Loeb's flagship Offshore Fund gained 2.6 percent in October according to a monthly investor note reviewed by Reuters, pushing yearly returns to 13.8 percent.

The Third Point Ultra fund, which is a levered version of the Offshore fund, added 3.8 percent in October according to date from HSBC's private bank. That portfolio is now up more than 22 percent for the year.