Hedge strategies post modest gains for June, say index providers

Five of the six hedge fund strategies covered by Dow Jones Hedge Fund Indexes posted net-of-fees gains in June, ranging from a high of 70 basis points for equity market neutral to a low of 38 basis points for distressed securities. Event-driven, the only strategy down in June, lost 65 basis points.

All six strategies were up in the second quarter of the year, as they had been in the first, with returns ranging from a high of 6.97 per cent for equity long/short to a low of 0.43 per cent for convertible arbitrage.

Equity long/short was the top-performing strategy for the first half of the year with a gain of 11.31 per cent, followed closely by merger arbitrage with 10.06 per cent. Distressed securities and event-driven posted identical performance for the six months to June, with a return of 6.97 per cent. Equity market neutral was up 2.42 per cent for the year to date, while convertible arbitrage brought up the field with a cumulative gain of 2.34 per cent.

The Barclay Hedge Fund Index rose 0.90 per cent in June, a 12th successive month of gains. According to Barclay's data, hedge funds have enjoyed average growth of 14.4 per cent since July 2006.

The Barclay Group, founded in 1985, tracks 6,200 hedge funds and managed futures programmes, and calculates 18 proprietary hedge fund indices and eight managed futures indices.

'As an asset class, hedge funds continue to be a profitable alternative for investors,' says Sol Waksman, founder and president of The Barclay Group. 'The Barclay Hedge Fund Index has gained 71.50 per cent over the past five years, with a compound annual return of 11.39 per cent. Over the that period, the index has fallen in 10 months and risen in 50 months, making it a fairly comfortable ride for investors.'

In June, 15 out of 18 Barclay's strategy indices were in positive territory. The Equity Short Bias Index gained 2.50 per cent, Emerging Markets rose 2.25 per cent, Pacific Rim Equities gained 1.62 per cent, and Global Macro was up 1.59 per cent.

'Equity markets in the US and many other developed economies experienced price declines during the month, but hedge funds devoted to equity strategies were still able to make a profit in June,' Waksman says.

As with the Dow Jones indices, the only Barclay sector with a significant drop during the month was the Event-Driven Index, which fell by 0.77 per cent. 'Losses in the event-driven sector are most likely a result of price declines in equities coupled with declines in bond prices,' Waksman says.

The Barclay Hedge Fund Index rose by 7.55 per cent over the six months to June. The Emerging Markets Index gained 12.90 per cent compared with the first half of 2006, followed by Equity Long Bias with 9.96 per cent, Merger Arbitrage with 9.36 per cent, Distressed Securities with 8.57 per cent, and European Equities with 8.38 per cent.

'Continuing problems in the sub-prime loan market have resulted in the closures of several funds specialising in the sector,' Waksman says, 'but spill-over effects into the larger hedge fund sectors have been very limited.'

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