S and P Hedge Fund Index Outperformed By Equities In 2005

by Carla Johnson, Investors Offshore.com

16 January 2006

Standard & Poor's announced last week that a late rally last year added to hedge fund returns in 2005, although the S&P Hedge Fund Index gained just 2.28% over the calendar year - significantly lower than the returns announced by other hedge fund trackers recently.

By comparison, the S&P 500 benchmark index gained 3% last year, although the S&P HFI Equity Long/Short Index was the best performing sub-index during the year, gaining 9.24% and in broad alignment with results for equity-based hedge funds published by other indices.

Nonetheless, S&P's overall results stand in contrast to other annual hedge fund performance data released in recent weeks which point to hedge funds having outperforming US equities. For example, The Barclay Group announced last week that hedge funds gained on average 10.88% last year, as a 2.37% average return in December help push 2005 gains into double figures.

Meanwhile, data published by Chicago-based Hedge Fund Research revealed that the average hedge fund managed to attain a return of 9.18% last year.

According to Standard & Poor's Senior Hedge Fund Specialist, Justin Dew, the S&P HFI gained 0.26% in December helped by a strong rally in Asian equities, a correlated decline in the US dollar versus the yen and a temporary inversion of the yield curve.

Elsewhere in the S&P's monthly data, the Event-Driven Index gained 0.48% in December, as two of its three underlying strategies ended the month in positive territory.

The Macro sector saw gains during December, as some managers continue to believe that there is a substantial likelihood of a near-term recession in the US However, the Managed Futures sector incurred losses as a long-standing dollar rally reversed course.

The S&P Arbitrage Index gained 0.32% during December led higher by the performance of all three of its underlying strategies, particularly Equity Market Neutral, although the S&P Directional/Tactical Index lost 0.02% in December, as losses in the Managed Futures sector were only partially offset by gains in the Equity Long/Short sector.

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