While the 3.7% return suggests a relatively strong performance for the index, it still lags 2001’s 5.9% gain. Additionally, December’s 1.2% return was only marginally better than the 1.1% recorded by the index in November (See MSCI Hedge Fund Index Rises in November ), according to MSCI.
The performance of the MSCI Hedge Fund Composite Index, an equal weighted index, is comprised of five Process Group Indices. These Process Group Indices are further subdivided into Investment Process and Strategy Indices. Below is a brief description of the monthly and 2002 performance of select MSCI Hedge Fund Indices:
- MSCI’s Directional Trading Index bested all other indices, increasing 4.4% for December and 12.3% in 2002. MSCI defines Directional Trading strategies as those based on speculating on the direction of market prices of currencies, commodities, equities, and bonds in the futures and cash markets.
- MSCI’s Relative Value Index improved by 1.5% in December, to end 2002 better by 6.9%. Relative Value strategies focus on spread relationships between pricing components of financial assets or commodities.
- MSCI’s Security Selection Index decreased the most in December with a 0.4% loss and was also the only one of the five process group indices to end 2002 in the red, down 1.1%. Security Selection managers combine long positions and short sales with the aim of benefiting from their ability in selecting investments while offsetting systematic market risks.
- MSCI’s Specialist Credit Index rose by 1.6% in December and showed a gain in 2002 of 3.6%. Specialist Credit funds seek to lend to credit-sensitive issuers.
- MSCI’s Multi-Process Index increased 1.1% in December, to finish out 2002 with a positive 2.2% return. The Multi-Process group comprises funds, which practice a strategy where a single investment process does not account for more than 80% of their risk capital.
Final results by MSCI stand in some contrast to earlier reports from the average hedge fund, as measured by the Hennessee Hedge Fund Index, which was 0.58% lower in December and lost 3.43% in 2002 (See Hedge Funds Down In December and 2002 ), and a flat year-to-date reading for the Average US Hedge Fund tracked by Van Hedge Fund Advisors (See Hedge Fund Returns Even Things Up in Q4 ).
The final data revises earlier estimates for December’s and 2002’s returns that relied on estimates based on 63% of the funds (See MSCI Hedge Fund Index Up Almost 4% in 2002).