February proves a challenge for Australian hedge funds

February proves a challenge for Australian hedge funds

Australian hedge funds produced positive returns in February but for many managers it was a tough month, according to a report by Australian Fund Monitors.

The AFM Hedge Fund Index rose 0.11 per cent in February, while equity based funds rose 0.07 per cent, non-equity based funds rose 0.16 per cent and single funds were up 1.13 per cent. The AFM Fund of Fund Index fell 0.03 per cent.

Equity markets started the month much as January left off, with concerns over new legislation in the US, Greece’s sovereign debt issues possibly spreading elsewhere in Europe, and potential credit tightening in China all combining to prompt hedge fund managers to take risk off the table.

However the ASX200 ended the month up 1.49 per cent, and the S&P500 rose 2.85 per cent to show the resilience of the markets and how investors have seemingly forgotten the risk lessons of 2008.

Added to the market’s reversal were reporting season issues, with some previously well rated companies not meeting expectations and being hammered as a result.

As a result, many of the best – or most risk averse managers – produced flat or negative returns for February. Anecdotally those managers have bounced back in March in tune with the market’s rise of around six per cent which takes it back to where it started at the beginning of the year.

Monthly returns ranged from +3.54 per cent to -6.16 per cent and provided a wide discrepancy between managers, and some equally strange strategy averages: equity long/short and equity market neutral were both at the lower end of the scale, while equity buy write, 130/30, equity long and equity income took out four of the top five strategy positions.

Taken over 12 months, equity based strategies (headed by long only and 130/30 funds) have not surprisingly enjoyed the rebound in equity markets, but this disguises the fact that for the past six months or so the ASX has traded in a 4-500 point range between 4,500 and 4,900.

Most of the rise of almost 40 per cent in the past 12 months can be attributed to the six months that followed the lows in early March.

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