Hedge Funds Unable To Repeat Impressive New Year Gains

by Phillip Morton, Investors Offshore.com

08 March 2006

Hedge funds have been unable to extend their impressive New Year gains into February according to the Barclay Hedge Fund Index, which shows that hedge funds returned on average a modest 0.55% gain last month.

“February hedge fund returns were impacted by crosscurrents in several hedge fund sectors, reducing returns for many and creating losses for some,” explained Sol Waksman, founder and president of The Barclay Group, which actively tracks more than 5,200 hedge funds and managed futures programs.

“Long/short equity funds trading Japanese equities faced a difficult trading environment as large-cap equities outperformed small-caps. The TOPIX Small Cap Index lost 6.6% for the month while the more broadly-based TOPIX lost 2.9%," he noted.

February's performance data contrasts with the previous month, when the Barclay HFI gained 3.7%, driven by impressive gains in US equities, and small cap stocks in particular.

However, Barclay’s Emerging Markets Index continued its strong performance, up 2.10% in February and 8.39% during the first two months of 2006.

Emerging Markets led Barclay’s 18 hedge fund indexes in 2005 with a gain of 21.35%.

Nevertheless, Waksman stated that emerging market funds still have "significant challenges to overcome”, despite handsome profits.

“Equity markets in Eastern Europe, India, China and Venezuela were strong in February. But Argentina, Brazil and Mexico in Latin America, and Korea, Indonesia, and Thailand in the Pacific Rim were down for the month," he observed.

Overall, 14 of Barclay’s 18 hedge fund indexes showed gains in February. The European Equities Index gained 1.84%, Convertible Arbitrage was up 1.55%, Healthcare and Biotechnology gained 1.49%, and the Technology Index was up 1.15%. The Pacific Rim Index had the largest decline, down 1.99% in February.

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