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Hedge funds end flat in April on mounting fears over Eurozone debt

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Hedge fund strategies’ performance posted mixed results for April, with the Lipper Hedge Fund Composite Index ending the month almost flat at 0.02 per cent.

Other hedge (+1.65 per cent) was the best performing strategy for the month, benefiting from volatility spikes.

Convertible arbitrage (+0.54 per cent) was the runner-up, sustained by benign equity market sentiment and volatility patterns edging higher.

Meanwhile, managed futures (+0.41 per cent) delivered a healthy return at the end of the month as commodities markets continued to trade higher.

Global stock markets went up a mere 0.07 per cent for April as measured by the MSCI World TR Index.

In the US the stock market registered a 1.58 per cent return, according to the S&P 500 Index.

Seven of the ten sectors included in the index finished the month in the black; consumer discretionary (+6.02 per cent) and energy (+4.43 per cent) led the performance league table, followed by industrials (+4.09 per cent) and utilities (+2.44 per cent).

At the other end, healthcare (-3.91 per cent), consumer staples (-1.56 per cent), and telecommunication services (-1.40 per cent) were the worst performing sectors for the month of April.

Volatility as measured by the CBOE VIX spiked to a multi-month high (increasing 25.36 per cent—from 17.59 at the end of March to 22.05 on April 30), catalysed by a downgrade by S&P’s of Greece’s sovereign credit rating to junk status and of Portugal’s sovereign rating to “A-“.

Style investing registered positive performance, with mid- and small-cap stocks (+2.16 per cent) outpacing large-cap stocks (+1.85 per cent) and value (+2.59 per cent) outperforming growth (+1.12 per cent) stocks at the end of the month.

Developed markets (-0.16 per cent) ended the month in the red, dragged down by Greece (-11.47 per cent) and Portugal (-9.42 per cent) shares. Twelve of the 16 European stock markets edged lower on growing fears about the Greece debt crisis.

Despite declining from the previous month, emerging markets (+1.23 per cent) continued to post a positive return, led by Turkey (+6.47 per cent) and Indonesia (+6.03 per cent). All the BRIC countries with the exception of India (+1.82 per cent) registered negative returns for the month—Brazil (-1.34 per cent), Russia (-0.78 per cent), and China (-0.59 per cent).

Long bias (+0.01 per cent) and long/short equity (-0.11 per cent), focusing on US companies, registered disappointing returns for April. Greece’s downgrade did not derail US equities for the month as positive corporate earnings results outweighed Eurozone sovereign credit market concerns.
Meanwhile, funds focusing on European companies mostly posted losses as European stocks retreated amid worries about the euro area debt problems. The benchmark Stoxx Europe TMI TR dropped 2.46 per cent at the end of the month.

Managed futures (+0.40 per cent) performed relatively well for April as commodities continued to trend higher during the month. The Reuters/Jefferies CRB Index rose 1.60 per cent month on month, helped by precious metals (+6.04 per cent), grains and oilseeds (+7.36 per cent), and energy (+4.63 per cent).

Worries about Europe’s debt problems following the downgrades of Portugal’s and Greece’s debt contributed to flight-to-quality buying in gold (+2.39 per cent).

Sugar (-8.24 per cent) plummeted further during the month as the output during the 2010/11 cane crop in Brazil—the world’s biggest producer—was estimated to rise 17 per cent year on year, favoured by dry weather. Furthermore, India—the world’s second largest producer of sugar—had abundant monsoon rains to boost cane planting, raising projected sugar output for the year.

Crude oil (+1.85 per cent) rose, while natural gas (-1.05 per cent) dropped slightly.

The US dollar again appreciated against the euro (+1.59 per cent) amid mounting Eurozone sovereign debt market concerns, but it declined 0.57 per cent against the sterling. The sterling benefited from positive macroeconomic readings, including Great Britain’s better-than-expected labour market statistics.

High-yield bond markets had positive performance for April, with global high-yield bonds rising 1.88 per cent and global “fallen angel” high-yield bonds jumping 2.16 per cent. Both the European and US high-yield markets as measured by the Merrill Lynch High Yield TR Index registered positive returns, closing at 2.24 per cent and 1.38 per cent, respectively. As expected, the most speculative CCC-rated tier (+3.82 per cent) outpaced the higher-rated BB (+1.91 per cent) and B (+1.76 per cent) sectors.

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