S&P Hedge Fund Index Ahead by 0.29% in May

June 6, 2005 (PLANSPONSOR.com) - The S&P Hedge Fund Index was up 0.29% for the month of May, Standard and Poor's reported in a news release.

With the majority of gains arriving during the last week of the month, Standard & Poor’s reported that hedge fund managers were able to capture a large portion of strong directional moves in global equity, bond and currency markets after experiencing small gains and losses for much of the month.

Not only that, but a rising global equity market that shook off the effects of the May 5 GM/Ford rating downgrade and mixed economic data, helped hedge fund May performance, according to the announcement.

The biggest gainers in the index were among Managed Futures and Equity Long/Short managers, S&P said. The S&P Directional/Tactical Index advanced 1% in May as two of its three underlying strategies, Managed Futures and Equity Long/Short registered impressive advances. Macro managers were flat to slightly down as the focus in the marketplace shifted from China and its revaluation to the European Union and France’s constitutional vote, the S&P said.

“Some managers are becoming increasingly long US dollar vs. euro in part on the continued difficulty in passing the constitution in France and the Netherlands,” said Justin Dew, Senior Hedge Fund Specialist at Standard & Poor’s, in the announcement.

The S&P Managed Futures Index gained 2.43% over the month with the majority of this return coming at the end of the month with managers benefiting from a strong acceleration of the long USD/EUR trend. In addition, large gains were made in long financial futures positions as rates on the long end of the yield curve continued to decline, S&P said.

The S&P Arbitrage Index gave up 0.22% during May, led lower by losses in Convertible Arbitrage. Despite recent losses, some managers believe a bottom is near as valuations and slowing redemptions are making the strategy attractive again for many sophisticated investors, S&P said.

The Equity Market Neutral strategy, which faced a situation similar to Convertible Arbitrage of low absolute returns and large outflows last year, continues to generate strong year-to-date alphas. In the Fixed Income Arbitrage sector, performance continues to rank highly among the best performing strategies through May with yield curve flattening trades a big contributor to its return, according to the announcement.  Some managers in this sector are taking a more cautious approach, utilizing catalysts to identify trades and reducing overall portfolio risk by cutting back on leverage, S&P said.

The S&P Event-Driven Index gained 0.12% in May as managers benefited from a tightening of credits spreads in the US market. Special Situations and Merger Arbitrage both showed strong correlations to the market, S&P said.