Hedge Fund Returns Retreat in October
Year-to-date, the S&P HFI has returned 1.94%.
S&P said in its announcement that the loss seemed to be
fueled by a reduction in risk appetite.
“Hedge fund performance was influenced by a
number of factors in October, most significantly by a
substantial pullback in the global risk appetite as
evidenced by widening risk arbitrage spreads and a sizeable
retracement in the energy sector,” said Justin Dew,
Senior Hedge Fund Specialist at Standard & Poor’s,
in the announcement
The S&P Directional/Tactical Index lost 0.37% in
October, as global energy related markets fell sharply
during the month. In the Equity Long/Short
sector, long positions in energy-related stocks gave back
earlier gains as the prices of the underlying commodities
such as crude oil and natural gas fell after reports of
better inventory numbers and an announcement out of OPEC
that the heating needs for the winter season will be met.
The Macro sector saw gains during October, as some managers
believed there to be a substantial likelihood of a
near-term recession in the US. In the Managed Futures
sector, managers experienced losses as global equity
markets reversed course earlier in the month (with the
exception of Japan) causing problems for long positions in
equities. Toward the latter half of October,
according to S&P, the dollar rallied versus both the
yen and euro as interest rates began to point higher,
yielding profits in long dollar positions, as well as in
short bond positions.
The S&P Event-Driven Index lost 1.23% in October, as
all three of its underlying strategies ended the month in
negative territory. After bankruptcy announcements by
Refco and Delphi, the Special Situations sector suffered in
October.
In the Distressed sector, manager returns were mixed as
some were impacted by the news of the bankruptcies, while
others were not.
S&P reports that Distressed managers took
advantage of the recent investor sell off by making
selected additions to their portfolios during
October. In the Merger Arbitrage sector, risk
arbitrage spreads widened dramatically in a few large deals
as the likelihood of completion came into serious question,
in particular the Guidant/Johnson & Johnson merger.
The S&P Arbitrage Index gained 0.22% in October led by
the performance of fixed income arbitrage and equity market
neutral sectors. In the Fixed Income sector, modest
gains resulted as the Federal Reserve Bank began to
have a significant impact on interest rates. Equity
Market Neutral managers managed a slight gain in October,
as the small-cap sector performed well. In the
Convertible Arbitrage sector, October was a rather flat
month due in part to anticipated quarter-end redemptions in
convertible bond hedge funds.