Hedge Funds Continue Good Form Through April

by Phillip Morton, Investors Offshore.com

11 May 2006

Early estimates indicate that hedge fund managers again outperformed most major indices in April and produced positive returns for investors for the sixth consecutive month.

The HFN Hedge Fund Aggregate Average, an equal weighted average of all single manager hedge funds in the HedgeFund.net database, was up 2.25% in April and 7.97% year-to-date (YTD).

The HFN Average has been down only one of the last twelve months and is up 18.72% during that period.

As last month, large returns were generated mainly from commodity related sectors and emerging market countries while volatile currency markets have made trend following difficult.

The HFN Emerging Markets Average was up 3.63% and has gained 13.13% YTD. Emerging markets, specifically Russia, India, Brazil, and emerging Asia led global equity markets in April. Latin American countries benefited from their positions as exporters of surging commodity metals such as copper, zinc, tin , gold and silver. The HFN Country Specific Average which is highly influenced by funds in developing Europe was up 5.68% in April and 17.15% for the year.

Energy was again a major global influence as oil prices surged to post-Katrina levels on continuing supply driven concerns. The HFN Energy Sector Average was up 2.91% in April and 10.92% YTD.

Long biased managers were additionally helped by the release of US Fed meeting minutes indicating US rate increases may soon be coming to an end, as well as strong earnings from the financials sector. The HFN Long/Short Equity Average was up 2.11% and has gained 9.22% YTD, while the HFN Short Bias Average was up 0.72% but down 3.34% YTD.

Regionally, the HFN Asia Average was +2.03% in April and +7.18% YTD. This was ahead of the HFN US and Europe Averages which were +1.66% and +1.74% respectively. Japanese equities gave up the majority of early April gains after China raised rates late in the month, but returns for the Asia Average were aided by funds with exposure to Korea, Taiwan and other emerging Asia markets.

Early results from the Barclay Hedge Fund Index, which actively tracks more than 5,300 hedge funds and managed futures programs, also indicate that hedge funds had a good April, gaining on average 2.05%.

“Directional strategies such as Emerging Markets and Global Macro continue to provide impetus to overall hedge fund returns,” says Sol Waksman, founder and president of The Barclay Group.

“Most Emerging Market equity indexes had solid gains in April. Macro funds were able to profit from opportunities presented by rising U.S. interest rates, a weakening U.S. Dollar, and strong price gains in precious and industrial metals," he added.

In April, 17 of Barclay’s 18 hedge fund indexes were in positive territory. Barclay’s Emerging Markets Index jumped 4.66% and is up 14.97% in 2006, continuing this sector’s strong bullish performance from 2005.

Barclay’s Global Macro Index was up 4.02%, Distressed Securities gained 3.76%, Equity Long/Short rose 1.96%, and Equity Long Bias Index gained 2.01%.

“Reports of historically low default rates helped to improve returns for Distressed Securities funds,” says Waksman. “Investor perception of reduced risk in the sector has driven prices higher.”

Only Equity Short Bias lost ground in the Barclay Index, down 0.85% in April and off by 4.82% for the year.

Recommended