S&P: March Hedge Funds Linked to Equity Goings On

April 5, 2004 (PLANSPONSOR.com) - The Standard & Poor's Hedge Fund Index showed an unusually close tie to equity performance in March, turning in a -0.12% loss under increased geopolitical concerns and equity market volatility, S&P said.

Year to date, the index showed a 1.9% advance, compared to a 1.3% gain on the broader market S&P 500. The Event Driven Index, which includes managers in the Distressed, Merger Arbitrage and Special Situations strategies, fell 0.21%.

 “With widening credit spreads in the wake of Madrid bombings on March 11, we tracked a negative impact on Distressed positions,” said Charles Davidson, senior hedge fund specialist, Standard & Poor’s, in a news release. “We also saw a continuation through March of increasing deal volumes in Merger Arbitrage funds, however tight spreads have somewhat limited profit potential,” he added.  

The Directional/Tactical Index, the only sub-index to show a gain with a 0.45% advance for March and 3.2% for the year, showed little net movement as currency and metals gains by Macro traders were offset by losses from reversals in fixed income and currency cross positions by Managed Futures funds. Meanwhile, the Equity Long/Short basket was up slightly from a net long exposure in the rising Japanese market.    Macro benefited from long exposure to metals and short financial futures in Japan where investor confidence in the local economy continued to rise, S&P reported.

Further, the Arbitrage Index dipped in March losing 0.61% for the month (0.60% year to date) as continued underperformance by Equity Market Neutral and a backup in prepayment rates after falling yields earlier in the month adversely affected mortgage traders in the Fixed Income Arbitrage strategy.   

The S&P Managed Futures Index fell in March in conjunction with the S&P 500, a somewhat unusual correlation as the S&P MFI has historically tended to show a fairly strong negative correlation to falling equity markets.