Hedge Funds Extend 2011 Gains
Thursday, May 19, 2011

April appears to have been a good month for hedge fund investors, with four of the main hedge fund performance tracking indexes reporting solid returns for the month.

According to Sol Waksman, founder and President of Iowa-based BarclayHedge, which tracks the performance of more than 6,000 hedge funds, funds of funds and managed futures programmes, higher prices for equities and bonds in April provided an accommodating environment for most hedge fund strategies.

“Strength in the bond market despite US dollar weakness and a well bid equity market took many participants by surprise,” says Waksman. “Yet looking at the positive returns of fixed income-based strategies in April, it appears that hedge fund managers were not caught unawares."

All but two of Barclay’s 18 hedge fund indices had gains in April. The Barclay Healthcare & Biotechnology Index was up 3.45%, Technology gained 2.67%, Global Macro was up 1.96%, Emerging Markets gained 1.82%, and the European Equities Index rose 1.78%.

The wider Barclay Hedge Fund Index gained 1.32% in April, while the The Barclay Fund of Funds Index gained 1.14% in April and is up 1.98% in 2011.

“Hedge funds have made steady progress since September of 2010, as evidenced by eight straight months of gains for the Barclay Hedge Fund Index,” says Waksman.

Strategies focussing on shorting stocks still seem to be taking something of a hammering, however, as evidenced by BarclayHedge's Equity Short Bias Index which has lost ground for eight months in a row and gave up another 1.94% in April. Equity Short Bias is down 7.66% year-to-date.

Meanwhile, it has been announced that the Dow Jones Credit Suisse Hedge Fund Index (Broad Index) finished up 1.80% in April, with nine out of 10 sectors posting positive performance for the month. Oliver Schupp, President of Credit Suisse Index Co., LLC, said that Managed Futures was the best performing sector for the month, finishing up 5.4%.

Estimated new hedge fund assets totaled USD9bn in April, taking year-to-date hedge fund inflows to USD35bn. This, according to Schupp, brings overall industry assets to USD1.84 trillion, the highest level since 2008.

RBC Capital Markets has reported slightly lower returns for the hedge fund industry for April at 0.94% and confirmed that the RBC Hedge 250 Index, based on returns reported by almost 4,000 hedge funds (excluding funds of hedge funds) in fact suffered a 0.31% loss in March. The index's year-to-date return stands at 2.62%, but RBC says that its April figures are currently provisional, and will not be confirmed until the middle of next month.

Hennessee Group, an adviser to direct hedge fund investors, announced earlier this month that the Hennessee Hedge Fund Index advanced 1.36% in April, but Lee Hennessee, Managing Principal of Hennessee Group, notes that hedge funds are still underperforming for the year amid a "challenging" investment environment. By comparison, last month the S&P 500 advanced 2.85%, the Dow Jones Industrial Average increased 3.98%, and the NASDAQ Composite Index gained 3.32%.

“While managers generated gains in long portfolios as equity markets continued to rally, shorting continues to work against hedge fund managers, detracting from performance," Hennessee observed.

Charles Gradante, Co-Founder of Hennessee Group, notes that more hedge fund managers are favouring large capitalization, multinational companies over smaller and mid-cap stocks, which are relatively over-priced.

“Large cap, multinational companies have under-performed significantly in recent years and are currently selling at attractive valuations relative to small and mid cap stocks. In addition, many of these companies have large exposure to rapidly growing emerging economies, which will provide good growth opportunities," he said.