Long-Biased Managers Lead Resurgence In Hedge Fund Performance

by Phillip Morton, Investors Offshore.com

17 August 2005

The Van Global Hedge Fund Index (“VGHFI” or the “Index”) gained 1.9% net of fees in July, led by strong performance in the equity long/short strategy group, according to hedge fund index provider Van Money Manager Research, LLC (VAN).

July was the best month of the year for the industry with surging global equity markets providing long-biased managers in the Long/Short Equity Group with an attractive investment environment. Convertible arbitrageurs likewise benefited from a good environment as credit spreads tightened, new issues increased, and volatility rose in select names due to earnings announcements.

“The purported demise of hedge fund returns now seems exaggerated” noted Kevin Campbell, Vice President of VAN.

“Over the past one-, two- and three-year periods, the Index has gained approximately 10%, 20% and 35%, respectively. Although the S&P 500, a standard benchmark for investors, has achieved higher returns over these periods (14%, 29%, and 43%, respectively), its annualized standard deviation is more than three times that of the VGHFI over this three-year period, 13.1% for the S&P 500 versus 4.2% for the Index, illustrating the benefits that hedge funds offer to investors," Mr Campbell added.

Eighteen of VAN’s twenty individual hedge fund strategy or sub-strategy indices rose in July, led by Opportunistic (4.2%) and Aggressive Growth (4.0%). These strategies took advantage of the rise in equity markets, particularly in the small cap growth sector. As expected in this environment, the Van Global Short Selling Index was the worst performing index last month, losing 3.2%.

The Van Global Market Neutral Arbitrage Index had its best gain in two-and-a-half years, rising 1.6%. This was largely a result of the positive environment for convertible arbitrage described above. These managers, which represented approximately 35% of the Market Neutral Arbitrage managers that reported in time for the calculation of the Index, gained on average 2.0% net in July.

For comparison purposes, the U.S. equity markets performed well with the S&P 500, Dow Jones Industrial Average, Nasdaq, and Russell 2000 gaining 3.7%, 3.7%, 6.2%, and 6.3%, respectively. The global equity markets performed equally well with the Morgan Stanley Capital International World Equity Index, the Nikkei 225 and the Dow Jones Europe Stoxx Index gaining 3.4%, 2.7% and 3.7%, respectively. In this environment, fixed income markets did not perform as well. The Lehman Brothers Aggregate Bond Index declined 0.9%.

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