Hedge funds concluded the surprisingly volatile first half of 2010 with a decline of 0.81% for the HFRI Fund Weighted Composite Index, bringing first-half performance to a narrow decline of 0.18%.
After a quiet Q1, volatility increased significantly in Q2 with concerns about sovereign credit risk, currency policy adjustment, economic and energy market impact of the environmental disaster and concerns about slowing growth in both developed and emerging economies contributing to declines in global equity markets, a powerful late-quarter rally in US Treasury bonds and volatile directional moves in currency & commodity markets.
Equity Hedge was the weakest area of industry performance with the HFRI Equity Hedge (Total) Index declining 1.50% (YTD: -1.60%). Across EH sub-strategies, funds focused on Fundamental Value and Energy/Basic Materials were the weakest area of performance, with these declining by 2.05% and 1.95%, respectively. Equity Market Neutral and Sector: Technology/Healthcare posted more modest declines of 0.40% and 0.90% for June, respectively. Short selling funds were the lone positive contributor in EH, gaining 3.73%.
Relative Value Arbitrage was the strongest area of industry performance, with the HFRI Relative Value (Total) Index gaining 0.40% for June (YTD: +3.66%). Fixed Income exposure across sovereign, convertible, corporate and asset backed all posted gains in June, which were complemented by gains in Volatility and MLP-focused strategies; gains were driven by falling yields, increasing volatility and a sharp increase in Natural Gas.
The HFRI Macro (Total) Index declined by 0.23% in June, dropping YTD performance to 1.27%. Minimal gains in quantitative, trend following Systematic Diversified (+0.17%) strategies and Active Trading strategies only partially offset declines in Discretionary Thematic and Commodity Focused funds.
The HFRI Event Driven (Total) Index declined by 1.10% (YTD: +2.43%) with declines in Activist and Distressed/Restructuring (-0.94%) offsetting gains in Merger Arbitrage (+0.11%) on weaker corporate credit markets and generally wider risk arbitrage spreads.
The HFRI Emerging Markets (Total) Index posted a decline of 0.63% with gains in Latin America and Emerging Asia only partially offsetting declines in Russia and the Middle East.
