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December 12, 2005
Standard & Poors: hedge funds return to positive territory in November
Hedge funds returns, as measured by the S&P Hedge Fund Index (S&P HFI), gained 0.07% in November returning back to positive territory after a poor October showing, Standard & Poor's reported today. Year-to-date, the S&P HFI has returned 2.01% through the end of November.
"After the sharp sell-off in October, most markets not only recouped their losses but also reached all-time highs on the heels of supportive economic and corporate data," says Charles Davidson, Senior Hedge Fund Specialist at Standard & Poor's. "As corporate earnings continued to be strong and positive economic data continued to emerge, the risk tolerance of investors returned - and with that the performance of hedge funds."
Equity Long/Short managers were among the main beneficiaries of the market reversal in November, as the S&P Equity Long/Short Index gained 2.48% for the month. By increasing their net exposure, which had been taken down during the sharp correction in October, managers were able to benefit from the equity rebound in November.
The S&P Managed Futures Index returned a sturdy 4.19% return during November, as the Managed Futures strategy turned in a very strong month. Large gains were made in currencies, primarily from long positions in the U.S. dollar versus European and Asian currencies. Long metals exposure was also a major contributor to performance, particularly positions in copper and gold. Long equity index positions benefited from the global rally.
The S&P Event-Driven Index gained 0.45% during November, with continued high levels of activity in mergers & acquisitions, buyouts and restructurings continuing to provide attractive opportunities. Many managers took gains in November as spreads began to tighten over news that an agreement had been reached between Guidant and Johnson & Johnson with respect to a deal repricing.
"M&A managers used October's correction as an opportunity to add to high conviction trades - those deals that they feel have the best chance for high returns," says Davidson. "Managers now feel comfortable that there is sufficient liquidity in the marketplace to improve financing risk despite the increasing size and number of deals being completed."
Special Situations also had a strong November, as positive equity market momentum allowed these managers to exit long held positions. Distressed managers were down slightly during the month despite spreads that generally remained stable. For some managers, mark-to-market losses in energy related holdings offset gains in other areas such as consumer cyclicals. However, many managers still hold relatively high cash levels in anticipation of a more favorable risk-reward environment in 2006.
The S&P Arbitrage Index declined 1.26% during November, led lower by the underperformance of convertible and fixed income strategies. Convertible Arbitrage managers, particularly those in the U.S., had a difficult month as negative sentiment - reflected in widening spreads on some credits - returned to the strategy after a short rally during the past few months. A factor in the sell-off may be the efforts of some funds to raise cash, based on year-end redemption requests, after experiencing a difficult 2005. Fixed Income Arbitrage managers were hurt as falling energy prices assuaged investor concerns over inflation in the U.S., while also seeing the yield curve invert, albeit briefly. Comments by ECB President Trichet also added volatility to fixed income markets as traders tried to determine whether a series of rate hikes would follow.
See www.sp-hedgefundindex.com for daily updates of returns, as well as finalized monthly values, methodology, index change announcements, and constituents.
-SriMedia-
Posted by su at December 12, 2005 10:10 AM