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Hedge funds begin Q4 with best performance month in 2011

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Hedge funds posted the strongest monthly gains thus far in 2011, with the HFRI Fund Weighted Composite Index gaining 2.43 per cent for October. The gain snaps a two-month decline and follows a 3Q drop of 6.5 per cent, the fourth worst calendar quarter performance in history.

Equity Hedge strategies had the largest positive contribution to index performance in the month, with the HFRI Equity Hedge Index gaining 5.2 per cent. This was the best single-month gain for Equity Hedge since May 2009 and snapped a volatile, five-month decline for the strategy. Within Equity Hedge sub-strategies, the HFRI EH: Energy/Basic Materials rose 8.1 per cent, while the HFRI EH: Technology/Healthcare Index gained 3.9 per cent; the HFRI Emerging Markets Index gained 5.0%, partially reversing losses from the previous two months.

Event Driven funds also posted gains on improved equity markets, and tightening credit and M&A spreads, with the HFRI Event Driven Index up 2.7 per cent, the best monthly gain in 2011, with positive contributions from Special Situations and Activist funds. Relative Value Arbitrage funds posted a gain of 1.33 per cent, with gains in Corporate Fixed Income; for 2011, the HFRI Relative Value Index has gained 0.94 through October.

Macro funds posted declines on trend reversals, despite positive contributions from Commodity exposures and Discretionary managers. The HFRI Macro Index declined 1.4 per cent in October, while the HFRI Macro: Systematic Diversified Index fell 3.5 per cent, wiping out YTD gains with the worst month since July 2008.

“Hedge funds posted gains for October concentrated in Equity Hedge and Event Driven strategies, as managers adjusted exposures intra-month in response to rapidly improving condition across equity and credit markets,” says Kenneth J Heinz (pictured), President of HFR. “The primary focus for managers, as well as the primary catalyst for financial markets, continues to be the European sovereign debt crisis, with the outlook having improved despite the continued likelihood of volatility and unpredictable political developments. In the current environment, fund managers are looking to maintain tactical flexibility to opportunistically adjust exposure to dynamic market conditions, while maintaining core exposures to constructive portfolio themes across equity, credit, commodity and currency markets.”


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