Two Hedge Fund Reports Point to Negative July Performance

August 6, 2004 ( - Hedge funds had a tough time in July with two separate reports showing hedge fund indices ending the month in negative territory.

The Van Global Hedge Fund Index fell 1% net last month but held on to a year-to-date gain of 1.2%, according to a preliminary report by Van Hedge Fund Advisors International, LLC. The July Index return represents the average performance, net of fees, of more than 300 hedge funds.

For the year to date through July, the Van Global Hedge Fund Index remains ahead of world equity benchmarks. The S&P 500 is flat while the Stoxx 50 has lost 4.8% and the World Equity Index has given back 0.9%, according to a Van Hedge news release.

According to the Van Hedge news release, Short Selling strategy funds are emerging as July’s biggest winners among hedge funds while Aggressive Growth funds, which target the equity of companies with strong growth prospects, have been the biggest laggards far. Concerns over a slowdown in corporate earnings growth for the latter half of the year contributed to stock market losses in July. This especially had a negative impact on the NASDAQ companies often favored by Aggressive Growth funds, Van Hedge said.

Meanwhile, Convertible Arbitrage hedge funds, which experienced difficult conditions and uncharacteristic losses in May and June, may have the worst behind them since the majority of those funds reported gains last month, Van Hedge said.

Standard & Poor’s Hedge Fund Index

In a separate report, Standard & Poor’s said the Standard & Poor’s Hedge Fund Index fell 0.54% in July as two of the three sub-indices ended the period in the red. Although market volatility remained relatively low, higher oil prices and geopolitical concerns have resulted in risk reductions.According to Standard & Poor’s, the S&P Event-Driven Index ended the month down 0.75%.

“Negative consumer and money center sector performance caused losses for some investment managers as it appeared that surging oil prices may take money out of consumers’ pockets,” explained Justin Dew, Senior Hedge Fund Specialist at Standard & Poor’s in the S&P news release. “Merger Arbitrage had a difficult month as a general widening of spreads negated the effects of a few large deals closing early.” 

Also falling in July was the S&P Directional/Tactical Index. The index dropped 1.41% with losses in Equity Long/Short strategies noted as the major contributor to the negative return. However, the S&P Arbitrage Index rose 0.51% in July, as all three of its strategies ended in positive territory with Convertible Arbitrage as the best performer

The S&P Managed Futures Index ended a difficult July down 1.72% as positive economic data resulted in a mid-month trend reversal that saw the dollar gain against major currencies while hurting performance for trend- followers, S&P said. Losses were only partially offset by gains in long energy positions as crude rose to nearly $44 per barrel.

The S&P Equity Long/Short Index gave back 1.86% for the month. Even though most economic indicators point to a fairly bright earnings outlook, many investors continued to focus on geopolitical risks. Rising inventories in some segments of the technology market and uncertainty over government attempts to slow growth in China continue to weigh on the markets.