Van Global Hedge Fund Retreats in May

A Van Hedge news release said May’s giveback comes on the heels of a 1.2% loss the month before, marking the Index’s first back-to-back monthly losses since the summer 2002.

The Van Global Hedge Fund Index excluding Funds of Funds likewise had a 0.3% loss last month. The Van U.S. Hedge Fund Index, which includes only U.S.-domiciled funds, retreated 0.2% in May, while the Van Offshore Hedge Fund Index, which includes only non-U.S.-domiciled funds, fell 0.5% over the month.

Part of the disparity between the U.S. and Offshore Indices is due to the poor performance of Emerging Market strategy funds in May; the Offshore Emerging Markets Index contains about three times as many such funds as does the U.S. Emerging Markets Index, reflecting the larger number of such offerings outside the U.S.

“The markets were mixed in May but most hedge funds ended up in the red,” said George Van, Chairman of VAN. “Domestic stocks rebounded last month but long/short equity hedge funds didn’t seem to take advantage. The S&P 500 rose 1.4% in May but our Van Global Long/Short Equity Group Index dropped -0.2% net. Only about 11% of funds in the overall Van Global Hedge Fund Index outpaced the S&P last month while about 43% posted a positive return.”

Despite hedge funds’ losses over the past two months, the Van Global Hedge Fund Index remains ahead of major market benchmarks for the year to date through May with a 1.8% gain. The S&P 500 trails slightly with a 1.5% gain while the NASDAQ, Dow, and Lehman Brother Aggregate Bond Index all show year-to-date losses ranging from -0.7% to -1.7%, the news release said.

Strategy Group Showings

In May, all four of the Index’s major strategy groups sustained losses. The Specialty Strategies Group, which includes the Emerging Markets, Income, Multi-Strategy and Short Selling strategies, fared worst, losing   1% in the Global Index. The Directional Trading Group lost 0.7% in May, due largely to widespread losses among Futures funds. The Market Neutral Group and Long/Short Equity Group each retreated 0.2%.

For the year to date, the Market Neutral Group has performed best, with a 2.6% advance. Only the Directional Trading Group is negative for the year to date, showing a 0.6% loss.

In May, six of the fifteen individual strategies in the Van Global Hedge Fund Index were positive, with Market Timing posting the highest gain at 0.5%. Income and Distressed Securities followed with gains of 0.3% and 0.2%, respectively.

On the other hand, the worst performer was Emerging Markets, which lost 2.3%. Although Emerging Markets was the strongest performer of 2003 and the second-best performer in the first quarter of this year, the strategy encountered difficulties in April and May as equities in countries such as Russia, Brazil and China experienced sizeable losses. Futures lost 1.1% in May while the Opportunistic and Funds of Funds strategy indices both gave back 0.7%.

Among the four arbitrage sub-strategies tracked by VAN, Convertible Arbitrage was the only loser, falling -1.7% net in the face of rising interest rates and widening credit spreads.