While that suggests a relatively strong performance for the index, it still lags 2001’s 5.9% gain, and is based on performance results of just two-thirds (63%) of funds in the index at this point, according to MSCI.
Those results 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 loss of 3.43% for 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 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 performance of select MSCI Hedge Fund Indices:
- The MSCI Directional Trading Index increased by 5.1% for December, based on 66.4% of funds reporting. 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.
- The MSCI Relative Value Index increased by 1.8% in December, based on 60.4% of funds reporting, which would bring its year-to-date performance to an estimated 7.4%. Relative Value strategies focus on spread relationships between pricing components of financial assets or commodities.
- The MSCI Security Selection Index decreased the most in December with a 0.5% loss based on 65.3% of funds reporting. 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.
- The MSCI Specialist Credit Indexincreased by 1.9% in December based on 50% of funds reporting, which would bring its year-to-date performance to 4.2%. Specialist Credit funds seek to lend to credit-sensitive issuers.
- The MSCI Multi-Process Indexdecreased by 0.3% in December based on 60% of funds reporting, which would bring its 2002 performance to 0.7%. 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.
In November, the MSCI Hedge Fund Indices increased by 1.12%. (See MSCI Hedge Fund Index Rises in November ).