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Hedge fund strategies’ performance retreats in February

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All hedge fund strategies except managed futures finished February in negative territory (-0.29 per cent), according to the Lipper Hedge Fund Composite Index.

Other hedge (-0.98 per cent) and dedicated short bias (-0.64 per cent) were the worst performing strategies for February.

Reversing the previous month’s readings, managed futures (+0.26 per cent) led the performance league table for the month, followed by option arbitrage (-0.01 per cent), and event-driven (-0.11 per cent).

Global stock markets edged up 1.45 per cent for February as measured by the MSCI World TR Index.

All three major U.S. stock indices registered strong gains: the S&P 500 TR, the Nasdaq, and the Dow Jones Industrial Average registered 3.10 per cent, 8.78 per cent, and 2.56 per cent for the month, respectively.

Volatility as measured by the CBOE VIX declined sharply—from 24.62 in January to 19.50 in February, a decrease of 20.80 per cent.

Eight of the ten sectors included in the S&P 500 Index finished the month in positive territory, led by big gains in consumer discretionary (+5.30 per cent) and industrials (+4.57 per cent) shares. Utilities (-1.86 per cent) and telecommunication services (-1.29 per cent) were the only two sectors posting negative returns.

Unlike the previous month, all investing styles registered positive performance, with mid- and small-cap stocks outpacing large-cap stocks and growth outperforming value stocks at the end of the month.

Both developed (+1.25 per cent) and emerging (+0.37 per cent) markets traded higher. The developed markets were helped by Canadian (+5.65 per cent) and Hong Kong (+3.84 per cent) shares but were weighed down by European stocks—Greece (-9.77 per cent), Spain (-7.53 per cent), and Portugal (-6.00 per cent).

Meanwhile, the top performers among emerging stock markets were Peru (+7.31 per cent) and Philippines (+5.36 per cent). BRIC members—Brazil (+4.42 per cent), China (+2.19 per cent), and India (+1.32 per cent)—generally posted positive performance for the month, with the exception of Russia (-5.24 per cent).

Long bias (-0.52 per cent) and long/short equity (-0.28 per cent), focusing on US companies, dropped slightly at the end of February; US stocks suffered losses in the last week of the month after weak employment and durable goods data added to recent worries about the strength of the economic recovery. They were further dragged down by two disappointing data points: consumer sentiment and home prices. Meanwhile, funds focusing on European companies experienced big drops on worries about Greece and the broader European economic outlook.

Managed futures (+0.26 per cent) was the best performing strategy for February, benefiting from long exposures to short-term interest rates as well as short euro and sterling trades. The sterling dropped against all of the major currencies in the month of February, following a series of negative data releases concerning the UK’s economy.

In contrast, the dollar gained against risk currencies on concerns about Greece’s debt problems; the ICE Futures US Dollar Index was up 1.13 per cent for the month. The US dollar appreciated 1.71 per cent against the euro and 4.72 per cent against the sterling, while it depreciated 1.16 per cent against the Australian dollar and 1.61 per cent against the yen.

Elsewhere, commodities registered gains – the Reuters/Jefferies CRB Index jumped 3.46 per cent month on month – led by energy (+6.92 per cent) and industrial metals (+5.64 per cent). All sectors ended in the black with the exception of soft commodities (-8.42 per cent).

Sugar (-18.74 per cent) tumbled on signs of higher output figures in India, the world’s biggest consumer and second largest grower. Crude oil (+8.71 per cent) and nickel (+14.31 per cent) rose considerably, while natural gas (-5.79 per cent) dropped.

Event-driven (-0.11 per cent) delivered a slightly negative return for the month; global M&A deal value fell in February for the fourth month in a row to USD200.1bn. High-yield bond markets had a slightly negative performance for February, with global high-yield bonds dropping 0.24 per cent.

Nevertheless, both Europe and U.S. high-yield markets as measured by the Merrill Lynch High Yield TR Index posted modest positive returns, closing at 0.19 per cent and 0.15 per cent, respectively. Unlike in previous months, the higher-rated BB (+0.05 per cent) outpaced the most speculative CCC-rated (-0.02 per cent) and B (-0.01 per cent) sectors.

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