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Market trends drive Credit Suisse/Tremont index higher in September

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The Credit Suisse/Tremont Hedge Fund Index finished up 3.04 per cent in September as hedge funds were able to take advantage of market trends.

Every strategy in the index posted positive performance except dedicated short bias.

The highest return for the month came from emerging markets which posted 4.94 per cent, with Latin America showing the best regional performance, evidenced by the 12 per cent gain for the MSCI EM Latin America Index.

Economic macro data in September continued to be divergent, supporting both market bulls and bears, although bulls dominated the markets with the S&P 500 posting 3.73 per cent, the MSCI World at 3.81 per cent, and the DJ Stoxx 50 at 4.17 per cent.

The month saw a continuation of the atypical concurrent rally of government bonds alongside many equity markets, which a number of economists and managers believe was likely driven by the amount of liquidity in the financial system that has been provided by central banks and economic stimulus packages.
The gold spot price rose to new highs for the year at USD1,016 on 17 September, surpassing the USD1,000 per troy ounce for the first time since March 2008, driven by weakness in the US Dollar, and supporting the inflationary view in the inflation/deflation debate that has been taking place among investors.

According to the Hang Seng Bank Gold Digest, the spot gold price is headed for its ninth consecutive year of gains, which will make it the longest rally since the Second World War, with its price tripling since 2001, when it was just below USD300 an ounce.

Credit Suisse says a number of hedge fund managers have taken positions in gold in recent months, along with a number of investors seeking a safe haven in the event of a simultaneous correction in equity and fixed income markets.

On the other side of the inflation/deflation debate, a number of credit-oriented and global macro managers took positions in longer-term treasuries, based on a deflationary outlook and with the view that global policy rates are expected to remain low for an extended period of time.

Event driven managers continued their positive performance with the main drivers of performance coming from managers with idiosyncratic catalyst-driven distressed situations (particularly pre-emptive recapitalizations, i.e., occurring prior to a formal bankruptcy), as well as structured credit (primarily distressed mortgage-linked positions).

Managed futures, which in 2008 posted 18.33 per cent and outperformed the MSCI World Index by just over 60 per cent, is -4.20 per cent for 2009 year-to-date, but had a notable improvement in performance for the month of September with a return of 2.97 per cent, after trend followers started to get traction in August.

Volatility in a sideways market, such as occurred in May through July, can interfere with the ability of the trend followers’ models to capture market performance and was one of the factors that hampered a number of managed futures managers’ performance this year. September marks the third month of positive performance for the strategy, which derived the majority of its gains from equities, long-term bonds, currencies and short-term interest rates, supported by many governments’ continued stimulus plan implementations.

Global macro had a positive month, with quantitative managers having a similar turnaround as those in managed futures. Some of the sources of profits were similar, particularly in currency trading. Many bet on the Japanese Yen strengthening against the US Dollar and the Euro, and also went long the Australian Dollar and short the US Dollar. Gold, sugar, oil and certain base metals were key areas of focus in commodities, among others. Certain managers also added exposure to equities, many of them in the more liquid indices.

Dispersion was mixed amongst the sectors, with most having predominantly positive performance. The exception was dedicated short which continued to have predominantly negative performance.

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