The Scotia Capital Canadian Hedge Fund Performance Index finished September 2011 down 1.22% on an asset weighted basis and down 3.81% on an equal weighted basis. The Index outperformed broader equities on both asset and equal weighted bases, and outperformed global hedge fund peers on an asset weighted basis.
September brought more extreme intramonth market volatility. The key themes driving investor sentiment remained largely the same as in August: overall weak economic indicators across geographic zones, ongoing concerns over European banks and sovereign debt issues, including a possible default by Greece, as well as government interventions by Switzerland’s central bank to curb the CHF and the US Fed’s announcement to introduce its ‘Operation Twist’ stimulus measure.
Despite some strong US corporate earnings announcements, US equities sold off. The S&P 500 posted 7.2% with all sectors dragging performance. Canada’s S&P/TSX fell 8.97%, its seventh consecutive monthly loss. Despite a decline in US Treasury yields and resultant US bond market rally, investors also turned towards the USD as a safe haven. As investors drove up the USD, it appreciated accordingly against most major currencies. The CAD’s depreciation versus the USD was further impacted by the dramatic declines in commodities that were brought on by investor concern over global economic growth.
WTI Crude closed the month down 11%. Precious metals lost favour with investors as a safe haven: despite hitting a record high of USD 1,924/oz early in September, gold ultimately dropped 11%, and silver retraced by a notable 28%. September posed a very challenging trading environment for Canadian hedge funds. There was very wide performance dispersion across strategies: while some managers were able to generate – and hang to – winning trades despite choppy markets, many managers ultimately incurred a monthly loss. Defensive positioning and portfolio hedging continued to be key success factors in managers’ ability to steer a path through uncertain markets.
