Early estimates indicate the Credit Suisse/Tremont Hedge Fund Index will finish up 3.61 per cent in May.
Early estimates indicate the Credit Suisse/Tremont Hedge Fund Index will finish up 3.61 per cent in May.
Hedge fund managers posted positive returns across all major strategies in May except for managed futures, which were down 20 bps. Returns were driven by favourable investment conditions across equity, credit and commodities markets.
India led the positive trend in emerging markets, with the Sensex index surging 17.3 per cent within less than a minute of the announcement on 18 May that the Congress Party garnered a comfortable majority coalition in the general elections.
Industrial production numbers were up in many parts of Asia, with factories in Japan raising output by the largest monthly margin in nearly 60 years, and the Purchasing Manager’s Index in China expanding for a third month to a seasonally adjusted 53.1 (a reading above 50 indicates an expansion).
Some managers remained cautious, however, with the view that a switch from a government-led recovery to a consumer-led recovery may face hurdles such as the continuing rise of unemployment in many parts of the world, rising savings rates (particularly in the US), overhangs in vacant housing, as well as assorted weak macro data in Europe.
With spreads tightening and returns strong across the credit spectrum, relative value players such as convertible arbitrage and fixed income arbitrage were among the best performers.
With a 19.4 per cent year-to-date performance, convertible arbitrage outperformed the next best strategy by 6.9 per cent, and there was nearly USD6bn in new convertible bonds issuances in the US for the month.
With fixed income markets apparently unfazed by the General Motors’ bankruptcy, investment grade financials had the strongest performance, but investment grade industrials, utilities and high yield also had a solid month, as did leveraged loans.
The Treasury yield curve, meanwhile, hit a record steepness on 27 May with the spread between two-year and ten-year treasuries widening to 276 bps (surpassed in early June with a 279 bps spread). Managers benefited from positions such as corporate negative basis trades (long bonds versus credit default swaps), long financials exposure, swap curve steepeners and long-dated municipal bonds.
Global macro has continued to have the longest positive streak of all the strategies in the index for the seventh consecutive month, starting in November 2008. Managers found opportunities in currency trades, fixed income, commodities, as well as tactically trading equities.
Managed futures performance improved over April, but posted a fifth consecutive month of negative returns. Long/short equity managers continued to have wide dispersions of returns, with some managers adding to their long exposures and tactically harvesting returns from the rallies, while others maintained their defensive positioning, citing an absence of fundamental drivers for a strong v-shaped recovery.
Estimates are based on 62 per cent of assets reporting. Final May performance will be published on 15 June.
