January’s final numbers came in only slightly lower than December’s 1.20% (See It’s Official: Hedge Fund Index Better by 3.7% In 2002 ). However, the index performed better than the MSCI World Equity Index, which slid 3.12%. Over the past three years, the Hedge Fund Index has returned 8.01%, far outperforming World Equity, which has given back 16.92%, according to a MSCI news media release.
Similar to December, the best performing process group was Directional Trading, those strategies based upon speculating on the direction of market prices of currencies, commodities, equities, and bonds in the futures and cash markets, which returned 3.29%. The primary drivers behind Directional Trading’s performance were Systematic Traders, ending better by 4.95%.
Other gains were seen in Relative Value and Specialist Credit. Distressed Securities, which returned 2.42% for the month, helped Specialist Credit funds become the second best performing process group for January with a 2.19% return. Relative Value, strategies that focus on spread relationships between pricing components of financial assets or commodities, was up 1.47% behind the strength of arbitrage’s 2.29%.
Outperforming the 0.41% return of the MSCI Hedge Fund Equity Index was the MSCI Hedge Fund Fixed Income Index turning in a 1.94% return. MSCI attributes these results to the relative outperformance of Specialist Credit funds and Fixed Income Arbitrage funds over Security Selection funds.
The MSCI Hedge Fund Diversified Index, which reflects hedge funds that invest in equity, fixed income, commodities, and currencies, was the best performing asset class index, returning 3.10% in January.
The MSCI Hedge Fund Developed Market Index, which returned 1.33%, slightly outperformed the MSCI Hedge Fund Emerging Market Index at 1.02%, but both outperformed their relevant equity indices.
These hedge fund results were inconsistent with equity markets given that the MSCI Emerging Markets Free, which was down 0.57%, outperformed MSCI World Equity Index, which was lower by 3.12%. Hedge funds investing in Europe, which returned 1.03%, performed better than those investing in North America, which returned 0.55%.
The MSCI Hedge Fund Indices are composed of more than 160 indices. More than 1,700 hedge funds have agreed to participate in the database and there are over 1,100 hedge funds currently in the MSCI Hedge Fund Indices and Database.