Hedge funds consolidated their upward trend in September, with all hedge fund strategies except dedicated short-bias (-1.22 per cent) ending the month in positive territory, according to a report by Lipper.

A series of positive US macro readings, the IMF’s upwardly revised forecast, and rising M&A deals contributed to the stock market rally.

Emerging markets (+1.96 per cent) and long-bias (+1.92 per cent) were the best performing strategies for September for year-to-date returns of 18.94 per cent and 20.73 per cent, respectively.

Convertible arbitrage (+1.76 per cent), long/short equity (+1.48 per cent), and global macro (+1.25 per cent) were the runners-up in the performance league table.

Global stock markets consolidated their gains since mid-March, climbing 4.02 per cent month on month at the end of August, according to the MSCI World TR Index. The US equity market surged 3.73 per cent as reflected in the S&P 500 TR Index reading.

Benefiting from a weak US dollar, rising commodity prices, and steady capital inflows, emerging markets—especially BRIC members—performed significantly better than developed markets, with Latin America (+10.86 per cent) outperforming all emerging regions. In particular, the S&P Global BMI Emerging Markets Index surged 8.55 per cent month on month, led by Russia (+17.30 per cent) and Brazil (+14.50 per cent).

Developed markets ended up 4.21 per cent at the end of the month, with Korea (+11.65 per cent), Australia (+11.12 per cent), and Norway (+10.62 per cent) posting double-digit returns.

Funds overweighted in Brazil equities gained significantly as Brazil's Bovespa ended the month up 8.90 per cent, following a decision by Moody's Investors Service to raise Brazil's sovereign credit rating to Baa3—an investment-grade rating. Yield-stripped spreads between Brazilian sovereign bonds and US Treasuries—a key gauge of investor aversion to risk—tightened 37 basis points in September to 234 basis points.

Long-bias and long/short equity funds focusing on US companies performed extremely well during the month; all ten sectors included in the S&P 500 Index were up at the end of the month.

Industrials (+6.57 per cent) and consumer discretionary (+5.16 per cent) were the top-performing sectors for the month, while healthcare (+0.90 per cent) ranked at the bottom of the performance league table.

Global macro managers posted positive performance, mainly driven by long currency trades in the euro and the yen. Mid- and small-cap stocks slightly outperformed large-cap stocks, and growth benchmarks outperformed value benchmarks for the month.

Convertible arbitrage managers delivered positive returns for the eighth consecutive month, gaining 18.35 per cent year to date. Volatility as measured by the CBOE VIX declined slightly from 26.01 on 31 August to 25.61 at the end of September. Event-driven managers performed well during the month (+1.21 per cent) as confidence started to return in M&A. The dollar volume of worldwide and US M&A deals jumped significantly month on month at the end of September—up 58 per cent and 79 per cent, respectively—yet the number of deals was somewhat flat.

The high yield bond markets continued to rally during the month. Both European and US high yield markets as measured by the Merrill Lynch HY TR Index generated positive returns, finishing the month up 7.83 per cent and 5.98 per cent, respectively. The most speculative CCC-rated tier (+10.15 per cent) once again outpaced the higher-rated BB (+4.42 per cent) and B (+4.95 per cent) sectors.

A weak dollar pushed up the prices of commodities, rising 2.25 per cent in September as represented by the Commodities Reuters/Jefferies CRB Index. Natural gas, lean hogs, and gold regained ground, posting returns of 20.85 per cent, 7.24 per cent, and 5.86 per cent, respectively, while copper (-4.95 per cent) dropped substantially as inventories rose. The greenback was under pressure in September, declining 1.94 per cent month on month and 5.54 per cent since the beginning of the year, according to the ICE Futures USUSD Index (a trade-weighted geometric average of six currencies).


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