S&P Hedge Fund Index Climbs 2% In January

by Carla Johnson, Investors Offshore.com

13 February 2006

Standard & Poor's has announced that hedge funds' returns, as measured by the S&P Hedge Fund Index (S&P HFI), rose 2.01% in January.

Leading the charge into 2006 were Equity Long/Short managers, returning 4.48% for the month as measured by the S&P Equity Long/Short Index.

The S&P Arbitrage Index gained 1.37% in January with its three underlying strategies (Equity Market Neutral, Fixed Income Arbitrage and Convertible Arbitrage) all ending the month in positive territory.

"Equity Market Neutral managers had a good month with their growth and earnings revision factors the main drivers of performance," noted Charles Davidson, Senior Hedge Fund Specialist at Standard & Poor's.

Fixed Income Arbitrage managers turned in a strong January as well, despite the mid-month reversal in interest rates.

Convertible Arbitrage managers had a good month following a poor 2005. According to S&P, the subsequent decline of assets in the strategy, as well as the increase in equity volatility from lows in December, had a favourable impact on January returns.

The S&P Event-Driven Index gained 2.57% during January as managers used the strong market rally to exit some of their equity holdings acquired during bankruptcy processes.

Merger Arbitrage managers started the year on a high note as the bidding war over Guidant Corp between Johnson & Johnson and Boston Scientific proved profitable.

The S&P Directional/Tactical Index rose 2.10% in January as its three underlying strategies all gained due to their long exposure to global equity markets.

Managed Futures managers were up 0.99% during the month, as measured by the S&P Managed Futures Index as they rode upturns in equity indices, metals and crude oil which offset losses on long positions in the natural gas and financial futures markets.

Macro managers, in addition to gains on long equity exposure, continued to benefit from trades based on views that Asia and Europe will outperform relative to the US.

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