Hedge funds returned to positive territory in July, with the HFRI Fund Weighted Composite Index gaining 1.82 per cent, according to Hedge Fund Research.
The gain reverses two consecutive months of declines and brings index performance year-to-date to +1.52 per cent.
Global equity markets posted strong gains for the month as concerns about sovereign credit risk subsided, while investors were reassured by a number of developments including public equity and debt issuance, bank earnings and stress tests results and the passage of a framework for US financial reform.
July gains for the hedge fund industry followed a capital inflow of USD9.5bn in 2Q10; all main strategy areas contributed to positive performance for the month.
Equity hedge funds had the most positive contribution to industry performance, with the HFRI Equity Hedge (Total) Index gaining 2.88 per cent. Nearly all equity hedge sub-strategies had a positive contribution, with fundamental growth and energy and basic materials posting the strongest gains. Equity market neutral strategies gained 0.88 per cent, while short bias funds posted a loss of 6.3 per cent.
The HFRI Macro (Total) Index posted a gain of 0.28 per cent for July, as gains in macro discretionary and active trading were partially offset by losses in systematic trend following strategies and commodity exposure. Volatile and divergent trends across currency and commodities contributed to a challenging environment for trend following strategies, with the Macro: Systematic Diversified Index posting a decline of 0.29 per cent.
Event driven funds posted a gain of 2.19 per cent as liquidity and risk tolerance continued to improve and equity and fixed income issuance proceeded throughout the month. All event driven sub-strategies had a positive contribution, with activist and special situations posting the strongest gains.
Relative value funds posted a gain of 1.50 per cent on a continuation of strong corporate credit markets, with top contributions from convertible arbitrage and energy infrastructure exposure. Since December 2008, relative value arbitrage has posted gains in 18 of 19 months and is the top performing area of the hedge fund industry in 2010, with a YTD gain of 5.33 per cent.
The HFRI Emerging Markets (Total) Index gained 3.77 per cent with top contributions from Latin America and Russia/Eastern Europe funds.
The HFRI Fund of Funds Index gained 0.74 per cent.