Hedge Funds See In New Year With Gains
Thursday, February 10, 2011

Hedge funds rang in the new year with fresh gains as the Greenwich Global Hedge Fund Index (GGHFI) moved higher in January by 0.36%.

This marked the 7th straight monthly gain for the GGHFI and new all-time highs for several Greenwich Indices.

Arbitrage and Event-Driven strategies were the biggest winners in January with Fixed Income Arbitrage Funds posting the best results according to early estimates.

January was also a generally positive month for equity benchmarks - the S&P 500 Total Return (+2.37%), MSCI World Equity (+2.19%), and FTSE 100 (-0.63%) equity indices showed mostly positive results. 61% of constituent funds in the GGHFI ended the month with gains.

“Hedge funds as a group performed well in January but surprisingly Market Neutral strategies were the leaders,” said Clint Binkley, Senior Vice President. “One would expect Directional funds to outperform in an up-trending market. The fact that we see Arbitrage and Event-Driven funds perform so well on a relative basis shows that some Long-Short and Macro funds are remaining cautious.”

Long/Short Equity managers showed a wide dispersion of results in January with most managers moving higher on the month. The Greenwich Global Long/Short Equity Index advanced 0.43%, fueled by gains in US equity markets.

Directional Trading funds disappointed in January with funds losing 0.55% on average. Managed Futures funds retreated by 0.47% as systematic trading models suffered during the month.

Market Neutral funds were the best performing group of hedge funds in January with the Greenwich Global Market Neutral Index gaining 1.09% on average. Event-Driven managers gained 1.36% with Distressed managers and Merger Arbitrage funds contributing 1.41% and 1.16%, respectively. Special Situations funds also advanced by 1.49%.

Arbitrage Strategies were especially successful in January as funds gained 1.47% on average. Fixed Income Arbitrage funds showed the greatest gains among all funds during the month, netting 2.02%. Convertible Arbitrage funds also benefited from increased valuations, gaining 1.42%.

On a regional level, hedge funds investing in Developing and Emerging markets posted mixed results among regions. Emerging Market funds slightly outperformed Developed Market funds on average with the composite indices of each region gaining 0.54% and 0.35%, respectively. In Developed Markets specifically, funds investing exclusively in North America were the best performers (+0.75%), benefiting from the bull market move in US equities. In contrast, funds investing in developed regions in Europe lost 1.02%. Developed Market Asian funds moved sideways, gaining a modest 23 basis points on average.

For Emerging Market hedge funds, Europe was once again the best performing region as funds focused on this area gained 2.79%. Emerging Market Asian funds were laggards, losing 0.86% on average. South American and Latin American-based hedge funds treaded water, gaining 19 basis points.