Hedge funds declined by 1.33 per cent in June, according to the Barclay Hedge Fund Index compiled by Fairfield, Iowa-based BarclayHedge, and are now down by 2.09 per cent over the first si
Hedge funds declined by 1.33 per cent in June, according to the Barclay Hedge Fund Index compiled by Fairfield, Iowa-based BarclayHedge, and are now down by 2.09 per cent over the first six months of this year.
However, hedge funds significantly outperformed stock market returns during the first half, according to BarclayHedge founder and president Sol Waksman, a period during which the S&P 500 lost 11.91 per cent and the Nasdaq Composite fell by 13.55 per cent.
‘Hedge funds typically outperform equity markets during difficult periods,’ Waksman says. ‘For example, during the three-year bear market from 2000 to 2002, the S&P 500 lost 36.70 percent of its value, while hedge funds gained 21.48 percent.
‘People focusing on recent hedge fund declines have lost sight of the bigger picture – these investments actually add more value during down market cycles than in up markets. After all, when the market is going up, there isn’t as much need to be hedged.’
The Barclay Equity Short Bias Index gained no less than 11.83 per cent in June, leaving short up 18.76 per cent for the first half.
‘Thus far in 2008, shorting the equity markets has clearly been the most profitable strategy for hedge fund managers,’ Waksman says. ‘Whether they can hold on to these gains remains to be seen. Going short is a strategy that can come back and bite you when the markets turn quickly.’
Other strong performances were recorded in June by the Barclay Equity Market Neutral Index, which was up 2.86 per cent, and the Healthcare & Biotechnology Index, which rose 1.91 per cent.
Twelve of Barclay’s 18 hedge fund indices lost ground in June. The Emerging Markets Index dropped 4.15 per cent, Equity Long Bias was down 3.39 per cent, and Pacific Rim Equities lost 2.98 per cent.
Over the first six months of the year, the worst performing indices are Emerging Markets, down 9.39 per cent, and Pacific Rim Equities, down 5.86 per cent. The Barclay Fund of Funds Index lost 0.69 per cent in June, and is down by 2.51 per cent for the year.
BarclayHedge, formerly known as the Barclay Group, was founded in 1985 and tracks more than 6,800 hedge funds, funds of hedge funds, and managed futures programmes for its 18 proprietary hedge fund indices and eight managed futures indices.
The Credit Suisse/Tremont Hedge Fund Index, an asset-weighted benchmark, was completely flat in June, according to Oliver Schupp, president of Credit Suisse Index Company. The broad-based index gained exactly 2 per cent in May and is up by 0.51 per cent so far this year.
‘While the Credit Suisse/Tremont Broad Benchmark Index finished flat for the month, hedge funds performed well compared to global equity markets, such as the S&P 500 Total Return Index, which was down more than 8 per cent in June,’ Schupp says.
‘The highest performing sectors for the month were managed futures and dedicated short bias, both of which were well positioned to take advantage of volatility in equity and commodities markets. We estimate that five of the 10 hedge fund sectors will end June with gains for the month.’
The best-performing strategies in the index over the first half of 2008 were managed futures, which gained 14.86 per cent, dedicated short bias, with 11.95 per cent, and global macro, with 9.22 per cent, but emerging markets lost 3.55 per cent, fixed-income arbitrage 4.10 per cent and convertible arbitrage 5.56 per cent.
The Credit Suisse/Tremont AllHedge Index, an investible index comprising the 10 Credit Suisse/Tremont Sector Invest indices, was down 1.60 per cent net in June, while the Blue Chip Index, an investible index composed of the 60 largest funds across the 10 style-based sectors, was down 1.12 per cent.
The Credit Suisse/Tremont LEA Index, an asset-weighted composite index covering the emerging markets hedge fund universe, was down 3.54 per cent. Its Latin America sub-index was down 0.77 per cent, emerging Europe, the Middle East and Africa by 3.67 per cent and Asia by 6.09 per cent.