Fri, 14 Aug 2009, 05:44

Early reporting funds suggest another month of healthy returns for hedge funds, with the composite Eurekahedge Hedge Fund Index up 2.1 per cent for July and almost 12 per cent year-to-date.

The month’s returns were achieved on the back of strong rallies across underlying equity markets despite a rough start to the month. The MSCI World Index rose 8.4 per cent in July, owing to better-than-expected Q2 earnings reports and economic data and the resultant rise in risk appetite.

Gains were also made from the FX space, among other asset classes, as higher yielding currencies appreciated notably against the US dollar. The Canadian and Australian dollar strengthened 7.2 per cent and 3.4 per cent respectively against the US dollar.

Hedge fund assets rose for the third consecutive month, with flat to positive net asset flows (USD1bn) coupled with USD7bn of trading gains, based on early reporting funds.

Hedge funds are up 12.9 per cent since the start of 2007, while the S&P 500 is down 37.8 per cent over the period.

Over 270 new fund launches were confirmed with Eurekahedge for 2009 YTD, with fund closures up to end-July at nearly 400.

Managers across most regions recorded returns averaging close to or over two per cent in July, benefiting largely from rallying equity markets across their respective regions. Japanese managers were the only notable exceptions, turning in subdued gains of 0.3 per cent on average, as domestic equity markets underperformed against most of those across other regions, owing to worse-than-expected macroeconomic data.

Emerging market-investing managers returned an impressive 3.9 per cent on average, with strong gains coming from allocations to Asia and Latin America. Latin American managers (3.2 per cent) saw profits coming from bets across equities, corporate bonds as well as the regional credit space; while Asian managers (4.2 per cent) were largely aided by strong rallying equity markets through the second half of July.

Like the regional mandates, most strategic investment mandates were also up in excess of two per cent in July, with event driven, relative value and long/short equity managers being the best performers with returns averaging 4.8 per cent, 3.2 per cent and 3.1 per cent respectively.

Long positions across equities proved largely rewarding, especially through the second half of July, as encouraging Q2 earnings reports and better-than-forecasted economic data fuelled a strong equity market rally. The remarkable returns in the Eurekahedge Event Driven Hedge Fund Index can also be attributed, to some extent, to the exceptional performance of a Canada-focused single manager that returned over 20 per cent across its event driven portfolios in July.

CTAs, on the other hand, were the worst performers on average in July, ending the month flat. While some managers made strong gains from their investments in equity futures and bets in favour of high-yielding currencies such as the Canadian and Australian dollars, nearly half of the reporting funds, some of which were incorrectly positioned during the month, fared flat to negative.