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Hedge funds rise in March on positive US economic data

Hedge funds rise in March on positive US economic data

Over March all hedge fund strategies except equity market neutral (-0.02 per cent), fixed income arbitrage (-0.10 per cent) and option arbitrage (-0.06 per cent) finished the month in positive territory, with the Lipper Hedge Fund Composite Index returning a healthy 0.78 per cent.

Managed futures (+1.96 per cent) was the best performing strategy for the month, followed closely by emerging markets (+1.75 per cent) and long bias (+1.56 per cent).

Global stock markets edged up 6.25 per cent for March as measured by the MSCI World TR Index. In the US the stock market registered a 6.03 per cent return, according to the S&P 500.

All ten sectors included in the index finished the month in the black; industrials led the group with an 8.85 per cent gain, followed closely by financials (+8.77 per cent) and consumer discretionary (+7.69 per cent).

At the other end of the performance league table, utilities (+2.42 per cent) and health care (+2.44 per cent) were the worst performing sectors for the month. For the quarter eight of the ten strategies were positive, led by industrials (+12.45 per cent) and financials (+10.82 per cent).

According to Lipper, volatility as measured by the CBOE VIX continued to decline in March (down 9.79 per cent, decreasing from 19.50 at the end of February to 17.59 on March 31).

Style investing registered positive performance, with mid- and small-cap stocks (+7.97 per cent) outpacing large-cap stocks (+5.98 per cent), and value (+6.34 per cent) outperforming growth (+5.63 per cent) stocks at the end of the month.

Developed markets (+6.13 per cent) traded higher, led by Finland (+10.92 per cent) and Germany (+9.05 per cent). European stocks—Greece (+7.44 per cent), Austria (+7.62 per cent), and Italy (+7.28 per cent)—rebounded as fears about a sovereign debt default in Greece eased.

Meanwhile, emerging markets performed well, posting 8.08 per cent for the month, led by Turkey (+15.87 per cent) and Thailand (+14.09 per cent). All BRIC countries—Brazil (+7.04 per cent), Russia (+10.01 per cent), China (+5.41 per cent), and India (+9.21 per cent)—saw solid gains for the month.

Long bias (+1.56 per cent) and long/short equity (+0.89 per cent), focusing on US companies, registered positive returns for March yet lagged the gains posted in the equity markets. US equities rose, boosted by news that consumer spending was up 0.3 per cent for February after 0.4 per cent in January—rising for the fifth month in a row.

With signs of improvement in the labour market, US consumer confidence managed to recoup most of its losses, rising to 52.5 in March from an upwardly revised 46.4 for February.

Meanwhile, funds focusing on European companies mostly advanced, bolstered by hopes Greece will obtain aid to help resolve its debt crisis.
Managed futures (+1.96 per cent) was once again the best performing strategy for the month, benefiting from equity and industrial-metals trades and short exposures to the euro, sterling, and Japanese yen. The US dollar appreciated 0.84 per cent against the euro, 0.43 per cent against the sterling, and 5.19 per cent against the yen. The sterling dropped against all of the major currencies after the Bank of England said Britain may return to recession.

Elsewhere, the Reuters/Jefferies CRB Index slumped 0.52 per cent in March, dragged down by soft commodities (-15.37 per cent) and agriculture (-11.63 per cent). Sugar (-29.69 per cent) plummeted on forecasts that output will increase in India and Brazil—the world’s biggest producers.

Industrial metals outperformed as fears about the recent tightening of Chinese monetary policy eased. Nickel (+18.06 per cent) was the best performer, propelled by expectations of stronger demand from stainless steel mills.

Crude oil (+4.68 per cent) rose, while natural gas (-20.72 per cent) dropped considerably after the US government reported supplies grew for the first time this year. Gold prices (-0.50 per cent) dropped slightly, whereas silver (+6.10 per cent) rose.

Event driven (+0.42 per cent) posted a positive return, driven by credit-focus strategies. High-yield bond markets edged up in March, with global high-yield bonds rising 3.36 per cent. Both Europe and US high-yield markets as measured by the Merrill Lynch High Yield TR Index registered solid returns, closing at 4.90 per cent and 3.10 per cent, respectively.

The most speculative CCC-rated tier (+4.23 per cent) outpaced the higher-rated BB (+3.01 per cent) and B (+2.56 per cent) sectors.

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