Short-Selling Best Hedge Strategy In February

by Carla Johnson, Investors Offshore, London

18 March 2002

The average US hedge fund lost 1.1% net in February, according to Steven A. Lonsdorf, CEO of Van Hedge Fund Advisors International, Inc. (VAN), a leading hedge fund advisory firm. The average offshore-domiciled hedge fund, however, stood its ground with a flat return for the month. Among the major stock market averages, only the Dow was positive last month, with the S&P 500 dropping -1.9% and the NASDAQ shedding -10.5%, its worst showing since last September.

"February was a tough month but, in general, hedge funds succeeded in outpacing the market,'' stated Lonsdorf. "About 49% of reporting hedge funds experienced a net gain in February, and over three-quarters beat the S&P 500. As expected, short selling was the most successful strategy, with stocks weighed down last month by fallout from the Enron scandal, mixed earnings reports, and a decline in consumer confidence. US short sellers averaged a 3.3% net gain for the month while offshore short selling earned a 2.4% net return.

"We also saw continued strong performance among offshore emerging markets funds, which posted an average 2.4% net gain for February. On a global basis, four of the strategies in the Van Hedge Fund Index were profitable last month, with mild losses characterizing the other ten. For the second straight month, aggressive growth was the worst performing strategy as growth stocks continued to give back some of their gains from late 2001. Most of those funds, however, easily beat the NASDAQ in February.

"After the first two months of 2002, the average US hedge fund has slipped 0.6% net while the average offshore hedge fund has returned 1.0% net. Those numbers compare quite favorably with the average equity mutual fund, which has lost 4.2% year to date. US and offshore short selling have been the most successful strategies so far this year, although that may not be the case by the end of March. Long-biased equity-oriented strategies, such as aggressive growth, value, and opportunistic, are expected to fare well during this month's rally,'' concluded Lonsdorf.

Year to date through February, US short selling has produced an 8.7% net return, while offshore short selling and offshore emerging markets follow with 6.3% and 5.5% net returns, respectively.

A registered investment advisor, Nashville, Tennessee-based Van Hedge Fund Advisors International, Inc. introduces top-performing hedge funds to substantial investors in the US and abroad.

The Company's information on hedge funds is based on information received (and not audited or independently verified) from the hedge funds in an affiliate's databases and may not be representative of all hedge funds. Hedge fund returns are net of fees and performance allocations. The timing of the deduction of such fees and performance allocations may affect the reported performance. The February Index was created using a sample of 776 funds. Different statistics may be based on different numbers of funds. Averages are not dollar-weighted. Past results are not necessarily indicative of future performance.

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