Turbulent Markets Contribute To 1% Fall In Van Hedge Fund Index For April

by Phillip Morton, Investors Offshore.com

17 May 2004

Confirming poor hedge fund performance across the board last month, The Van Global Hedge Fund Index lost 1.0% net in April, reported industry consultant Van Hedge Fund Advisors International.

“It became clearer in April that the Fed won’t keep the federal funds rate at its historically low current level too much longer. Greenspan’s comments gave the stock market the jitters and added to the downward trend in bond prices, spelling a difficult month for investors of all sorts,” the firm noted in its report on April hedge fund performance.

However, despite the relatively poor performance in the hedge fund sector compared to previous months, Van points out that alternative investment funds still, in the main, outperformed most other conventional instruments, including the main equity indices.

Year to date performance for the Van Hedge Index at 2.3% meanwhile, remains comfortably ahead of equities. In comparison, the Nasdaq lost 4.0% over the same period and the small-cap Russell 2000’s gained just 0.8%.

By strategy group, the hardest hit funds in last month’s hostile markets were in the Directional Trading Group, falling 4.5%. The Directional Trading Group consists of Futures, Emerging Markets, and Market Timing strategy hedge funds, all of which saw losses for the month.

Unsurprisingly, the Market Neutral Group fared best, gaining 0.1% net. This group, which consists of Market Neutral Arbitrage, Distressed Securities, and Special Situations strategy funds, was the only one of the four Strategy Group Indices to post a gain according to Van.

Among the fifteen individual strategies tracked by Van, Futures fared worst by far in April, plummeting 6.9% net on a Global basis. The poor performance of these often volatile funds was largely blamed on last month’s rising interest rates. Emerging markets also performed poorly, down 3.3% in April.

Short Selling, typically used to help offset losses in the remainder of investors’ holdings during periods of market stress, by contrast had the best return in the Global Index, rising 3.6% net.

The only other winning strategies for last month were Distressed Securities, Income, and Market Neutral Arbitrage, which posted net gains in the Global Index of 1.4%, 0.4%, and 0.2%, respectively.

For the year to date, Distressed Securities leads all strategies with a 6.2% net gain, followed by Emerging Markets at 3.5% net and Value at 2.5% net.

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