Hedge Fund Losses End 7-Month Winning Streak

by Phillip Morton, Investors Offshore.com

20 November 2009

Hedge funds registered a 0.20% loss in October, ending seven consecutive months of positive returns, according to the Barclay Hedge Fund Index compiled by BarclayHedge.

“Prior to October’s loss, the Barclay Hedge Fund Index gained 21.96% during seven consecutive months of positive performance,” said Sol Waksman, founder and president of BarclayHedge.

“It was the best return for a string of winning months since the 18-month period from October 2002 through March 2004, when the Index gained 25.80%,” he added.

Eleven of Barclay’s 18 hedge fund indices lost ground in October, while the seven other strategies gained nearly equal value.

Equity Long Bias fell 1.79%, European Equities lost 1.69%, Healthcare & Biotechnology was down 1.35%, the Equity Long/Short Index lost 1.21%, and Technology was down 1.17%.

On the positive side, the Barclay Equity Short Bias Index rebounded with a 4.34% gain, Fixed Income Arbitrage gained 2.20%, Distressed Securities rose 1.53%, Convertible Arbitrage was up 1.27%, and Emerging Markets gained 1.05%.

“Most equity markets in developed countries followed the US lead and lost ground in October,” said Waksman. “Emerging markets did better as gains in China, Russia and Brazil set the trend.”

Increasing investor confidence in recent months fueled a broad rally in the fixed income sector, according to BarclayHedge. Since the beginning of the year, investment grade credit spreads have decreased by approximately 300 basis points. High yield spreads have decreased by more than 1,000 points.

“Hedge funds investing in fixed income will need to be more selective going forward,” concluded Waksman. “The easy money in this sector is probably off the table."

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