Early estimates indicate that the HFN Hedge Fund Aggregate Average, an equal weighted benchmark of all single manager hedge funds and CTA/managed futures products in the HedgeFund.net data
Early estimates indicate that the HFN Hedge Fund Aggregate Average, an equal weighted benchmark of all single manager hedge funds and CTA/managed futures products in the HedgeFund.net database, containing more than 8,000 current funds, funds of funds, and CTA products, declined by 1.35 per cent in March.
The majority of hedge fund strategies lost ground in March, leading to the index’s first negative first-quarter performance on record, influenced by the increased volatility surrounding the failure of Bear Stearns, However, despite the negative performance, the period saw the largest quarterly outperformance by hedge funds over equity markets since 2001.
Unlike in February, when emerging markets and rising commodity prices supported hedge fund outperformance, in March the big winners were short-bias funds, volatility-related options strategies and the relatively insulated asset-based lending strategies. The HFN Short Biased Average was up 2.24 per cent for the month and 11.04 per cent for the quarter, its best first-quarter performance since 2001.
Asset-based lending funds returned an average of 0.92 per cent in March and 2.30 per cent over the first three months of the year, while the HFN Options Strategies Average gained 2.49 per cent for the month and 3.04 per cent for the quarter.
The drop in non-energy related commodity prices hurt funds in the HFN CTA/Managed Futures Average, which declined by 0.71 per cent in March but maintained a 7.28 per cent gain for the year so far. Energy sector funds also lost ground despite rising natural gas prices and near-flat oil prices, with the HFN Energy Sector Average falling 4.81 per cent to complete a first-quarter decline of 6.59 per cent.
Emerging markets experienced a sell-off led by funds investing in China, India and the Middle East/North Africa region, which was hurt by funds investing in Turkey. The HFN Emerging Markets Average dropped 2.36 per cent in March and was down 4.27 per cent for the quarter.
HFN’s newly launched regional and country-specific benchmarks indicate that funds investing in China fell 6.13 per cent in March and were down 13.28 per cent for the first three months of the year, while those investing in India declined by 12.52 per cent and 25.49 respectively.
Distressed strategies fared poorly in the first quarter with the HFN Distressed Average off 1.28 per cent in March and by 4.13 per cent since year-end, its worst first quarter on record and the worst three-month performance since the end of 2000. Much is expected from distressed funds in 2008, but the results thus far indicate the environment has yet to produce favourable returns.
According to HFN, the first quarter of the year has shown where the weaknesses lie within hedge funds, but more significantly shown the broad number of funds able to provide relative outperformance over traditional investments. As in 2001 and 2002, the index provider says, 2008 may be a period when hedge funds distinguish themselves from equity markets as providers of long-term absolute returns.
