S&P Hedge Indices Hit By Across the Board Losses

June 7, 2004 (PLANSPONSOR.com) - The Standard & Poor's hedge fund indices suffered across-the-board losses in May in what S&P labeled "an increasingly uncertain marketplace," the company said in a news release.

The S&P HFI index – the main index component which tracks the performance of nine major hedge fund strategies – finished May down 0.68%.

The S&P Directional/Tactical Index, which includes the Macro, Equity Long/Short and Managed Futures sectors, suffered the biggest setback, down 1.18% on the month. “Following an extended period of Fed easing, last month was characterized by a shift from an environment of increasing liquidity to one of declining liquidity which had a particularly strong negative impact on the Macro sector,” said Justin Dew, senior S&P hedge fund specialist, in the announcement. “Losses in Macro can also be attributed to widespread expectations of tightening economic policies in China.”   

The S&P Arbitrage Index also gave up ground in May, declining 0.75%.   “This loss was in large part caused by poor performance in the Convertible Arbitrage sector, as market valuations fell from the unprecedented highs attained over recent years,” Dew explained. “In addition, underlying equity volatility and credit woes continue to concern convertible managers.”

Meanwhile, the S&P Event Driven Index – the best performing index in the S&P Hedge Fund Index series – also was in the red, losing 0.13% for the month.   While maintaining solid performance year-to-date, the Distressed sector was the loss leader in the month, primarily because of the response of high-yield bonds to a back-up in rates (five year back-up of 100 bps since April).   The Special Situations sector had a slight positive gain on the month as a few key valuation expectations came to fruition.