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Barclay Hedge Fund Index Falls 8%

by Phillip Morton, Investors

17 November 2008

Hedge funds dropped 8.04% in October according to the Barclay Hedge Fund Index compiled by BarclayHedge, and have lost 14.44% of their value during the past two months.

“The ‘Great Deleveraging’ continued in October,” says Sol Waksman, founder and president of BarclayHedge.

“Investors as well as hedge funds and banks continued selling in order to reduce risk exposure in their portfolios and raise cash. The result has been a significant year-to-date drop in equity prices, with US markets down 30%, other developed markets falling 40%, and emerging markets losing as much as 50% of their value," Waksman added.

The Barclay Emerging Markets Index was down 15.83% in October, and has lost 25.11% in just two months.

“It’s estimated that US investors hold some USD5 trillion in foreign equities,” says Waksman. “Those holdings are now being liquidated.”

Convertible Arbitrage dropped 12.22%, and has lost 20.45% in September and October.

“The short sale ban created an impossible situation for convertible arbitrage funds,” notes Waksman. “Selling stocks short is a key factor in the viability of the strategy.”

The only successful strategy in 2008 has been selling the equity market short. The Barclay Equity Short Bias Index had another strong month, gaining 17.21% in October.

“While Equity Long Bias funds have lost 25% of their value in 2008, Equity Short Bias funds have gained 43%,” observes Waksman. “The key factor in 2008 has been which side of the market you trade. It’s been tough for traders on the long side, whereas short traders caught a big wave.”

Year-to-date, the Barclay Hedge Fund Index has lost 19.30%, compared to a loss of 30.84% in the S&P 500.

The Barclay Fund of Funds Index lost 5.21% in October, and is down 17.33% in 2008.

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