New York, December 7, 2004-
Standard & Poor''s reported today that November hedge fund performance, as measured by the S&P Hedge Fund Index (S&P HFI), was up 1.45% for the month led by strong returns from both directional/tactical and event-driven managers. Standard & Poor''s is the world''s leading provider of independent investment research, ratings and indices.
The S&P Directional/Tactical Index performance for November was lead by strong returns in the Managed Futures sector. Gains were found in both short U.S. dollar positions and long equity index positions as the dollar fell on continued expansion of the current account deficit (as noted by Alan Greenspan in a speech before the Banking Congress in Germany), and equities climbed following the resolution of the U.S. Presidential election.
In spite of lingering low levels of volatility, Long/Short Equity experienced gains as the U.S. stock market, as measured by the S&P 500, rose by 3.86%. A rise in the materials sector was particularly profitable, as the demand from China/Asia in this sector does not appear to be waning significantly. Intra-month volatility increased in the health care sector due in part to the continuing evolution of the Merck saga. The Macro sector performed solidly in November as the dollar continued to play a strong role in many managers'' portfolios.
"Volatility again entered the energy markets in November as most futures contracts had significant retracements off their highs due to reports of increased oil production," says Justin Dew, senior hedge fund specialist at Standard & Poor''s. "This occurrence was exacerbated by the psychological impact caused by a large Chinese speculator reporting losses topping USD $550 million in short volatility trades in these markets."
The Event-Driven sector performed well in November, returning 1.43% for the month. Distressed investing lead the way as positions in a few, key energy related companies profited on their emergence from bankruptcy earlier in the month. "Resolution over who would be the next U.S. President, and what he would mean to the business sector, finally came to pass causing many positions in the Special Situations sector to gain," adds Dew. "Some managers in this sector believe that with the election behind us, we should see a number of pending business transactions finally culminate--specifically restructurings, stock buybacks and spinoffs."
The S&P Arbitrage Index was largely unchanged in November as Fixed Income Arbitrage had a flat month with Fed rate increases finally working their way into bond yields. This movement, off the recent low, substantially reduces prepayment risk in the mortgage market, which is typically a positive environment for MBS managers. Convertible bond prices moved in line with interest rates throughout the month forgoing the traditional lag. This increased efficiency made profits difficult to generate. In addition, convertible bond positions in Europe were a drag on performance as that market generally softened during the month