Commodities A Key Driver Of Hedge Fund Performance

by Phillip Morton, Investors Offshore.com

26 April 2006

The Greenwich-Van Global Hedge Fund Index gained 1.93% in March and is up by 5.67% year-to-date with commodities prices having been a key driver of fund performance, according to hedge fund index provider Greenwich-Van Advisors, LLC.

In comparison, the S&P 500 and the Lehman Brothers Aggregate Bond Index returned 1.25% (4.21% YTD) and -0.98% (-0.64% YTD), respectively in March. More than 85% of the funds reported a positive return.

"Most hedge fund managers were extremely pleased with first quarter trading results," noted Wade McKnight, Vice President of Greenwich-Van.

He continued:

"Hedge Funds posted their biggest quarterly showing in nearly three years based on Greenwich-Van index returns. Commodities prices continued to be a key driver of performance for many hedge funds. Managed-futures funds led the way in March yielding a return of 3.25% (3.55% YTD). However, emerging markets managers faired better, on a quarterly basis, than all other hedge fund strategies, generating a 10.70% return."

The Directional Trading Group, comprising futures, market timing and macro oriented hedge fund strategies, gained 2.46% in March. The Greenwich-Van Global Futures Index produced the highest return of all Greenwich-Van Indices, helped by trends in energy prices and base and precious metals prices. Silver posted a 22-year high, while gold futures recently surpassed $600. Macro managers, who select securities based on a top down view of interest rates, economic policies, inflation and currencies, generated a 0.81% return in March (3.32% YTD). The Greenwich-Van Global Market Timing Index gained 1.34% (3.46% YTD).

The Specialty Strategies Group, comprising emerging markets, income and multistrategy hedge fund strategies, gained 2.14% in March. The Greenwich-Van Global Emerging Markets index, the leading index within this strategy group (2.60% in March, 10.70% in Q1 2006), has climbed in each of the last seven straight quarters. Asset prices in emerging markets rallied to record high levels in Q1 2006, as investors snapped up emerging market bonds and equities. Continued improvement in many countries' fundamentals created new demand for emerging market securities. Investors' increased appetite for risk also appeared to be an important factor. The Greenwich-Van Global Multi-strategy and Income indices gained +2.24% and +0.66%, respectively.

The Long/Short Equity Group returned 2.11% in March. Managers with energy exposure led returns during the quarter. Additionally, rising interest rates helped long/short equity managers through the inherent benefit of short rebates. Greenwich- Van's Global Value, Aggressive Growth, Opportunistic and Short Selling Indices returned 2.46%, 2.38%, 2.10% and -2.73%, respectively.

The Market Neutral Group yielded 1.38% in March. Increased M&A activity drove performance of event driven managers in this category, while distressed and high yield markets ended the quarter relatively unchanged. Convertibles, on the other hand, experienced their best quarter since 2004.

Credit spread tightening in the second half of March, improved credit quality and active trading produced favourable returns for many convertible traders during the quarter. A strong beginning of the year for convertibles historically has prefigured a good year.

The Greenwich-Van Global Event Driven, Equity Market Neutral and Market Neutral Arbitrage Indices, returned 1.67%, 1.50% and 1.11% respectively.

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