The HSBC AsiaHedge Composite Index was all but static in May, putting on just 0.21% for the month and indicating that managers are being tested to their limits.


These statistics could suggest a comparative lack of direction for hedge funds in performance terms over the past month Now, while that does not look like much on a chart, May's horizontal progression belies the fact that many strategies have to deal with some of the most difficult investment conditions around. These markets have really been testing managers to their limits, to stay focused, to stick to their systems, and not to be fazed, perhaps, by the expectations of any less understanding investors.


May's Asia-Pacific performance returns are exactly what one would expect from hedge funds as a genre. In markets that ended down, hedge funds protected capital and paid attention to minimising their losses. In markets that ended up on the month, hedge fund performance has been slower to pick up. This is quite normal. Out-performance by hedge funds in blue water, trending bull markets, tends to occur over a comparatively longer time span. Yet these are hardly the conditions that we find now.


Encouragingly, both of the regional indices have bettered the major market benchmarks. Both Asia including Japan (0.04% versus -0.68% for the MSCI Pacific Free) and Asia excluding Japan (0.11% versus -0.07% for the MSCI Pacific Free ex Japan) outperformed. In the case of the latter this is particularly encouraging given that ex-Japan managers have much to do to justify the particular favour that investors have shown in them over the past 12-18 months.


On the other hand, both Australia (1.51% versus the ASX 100's 3.23%)and Japan lagged (0% versus the Nikkei's 2.43%) in up-markets. Not that this should in any way signify the beginning of a trend. Most expect these overly directionless conditions to continue.


<?xml:namespace prefix = o ns = "urn:schemas-microsoft-com:office:office" /> 



Strategy



May 05



 YTD




Asia inc-Japan <?xml:namespace prefix = st1 ns = "urn:schemas-microsoft-com:office:smarttags" />US$



0.04%



0.38%




Asia ex-Japan US$



0.11%



1.92%




Japan long/short US$



0.00%



2.56%




Japan long/short yen



-0.20%



2.22%




Australia long/short AUS$



1.51%



2.27%




AsiaHedge Composite



0.21%



2.06%




Emerging Markets



1.04%



1.72%


Methodology: The HSBC AsiaHedge indices show median returns each month and measure the performance of hedge funds in four geographies, including Japan, Asia excluding Japan, Asia including Japan, and Australia.


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