Tue, 10/11/2009 - 15:59
Early estimates indicate the Credit Suisse/Tremont Hedge Fund Index will finish almost flat with a +0.17 per cent return in October.
Hedge funds had a slightly positive month overall with a widening dispersion of returns among strategies, based on whether managers could take advantage of October’s market volatility.
The Chicago Board Options Exchange Volatility Index, which measures the implied volatility of S&P 500 Index options, began a surge of approximately 30 per cent on 23 October that took the VIX from just over 20 to just over 30, as equity markets took a turn downward in the second half of the month.
October’s US equity gains for many long/short managers were concentrated in the industrial, utilities and health sectors, and from shorting financials. Some managers which have had positive returns in recent months have begun to take profits and wind down for the year, while others which have struggled due to their defensive positions earlier in the year continued to actively seek opportunities arising from the market volatility.
Macro data was mixed, with positive earnings momentum in the US and globally, as well as positive GDP growth figures for the third quarter in the US and China, and encouraging PMI numbers for the Eurozone (except the UK which saw its economy shrink by 0.4 per cent in 3Q).
On the other hand, PMI numbers in Singapore slipped to 50.2 from a peak of 54.4 in August, personal spending in the US dropped by 0.5 per cent, and US consumer confidence dropped from 73.5 per cent in September to 70.6 per cent, according to the Reuters/University of Michigan Consumer Sentiment Index.
Certain managers in equity market neutral (-0.53 per cent) and relative value strategies believe that the increase in market volatility may continue and will likely favour securities pickers who perform fundamental analysis.
Credit Suisse Tremont believes sideways markets are also generally a better environment for arbitraging rather than long-biased, directional approaches. For example, Merrill Lynch reports that the convertible bond market was down for the first time since January, but convertible arbitrage managers had their 11th consecutive month of positive performance (+1.90 per cent) as they shifted their focus to arbitraging strategies rather than the long-only-type credit plays that were profitable earlier in the year.
Equity market neutral managers (-0.53 per cent) also experienced a positive month and their performance relative to other hedge fund strategies improved, since its market neutral profile can give the strategy an advantage over those with higher market correlations when volatility rises.
Dedicated short bias had its first positive month since February and was the performance leader with 5.86 per cent for the month, while many managed futures managers (-2.23 per cent) gave back some of the profits of the previous two months.
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