Hedge fund strategies draw back in July

Despite ending the second quarter on a positive note, hedge fund strategy performance retreated in June as global markets moved sideways. Easing from the highest monthly performance since February 2000 posted in May, the Credit Suisse/Tremont Broad Hedge Fund Index fell in June to 0.43% for a fourth consecutive month of positive returns.

Over June all hedge fund strategies except dedicated short-bias, equity market-neutral, global macro, long/short equity, and managed futures posted positive performance, according to the latest report from Lipper.

The best performing hedge fund strategy was convertible arbitrage, returning a solid 4.05% according to the Credit Suisse/Tremont sub strategy index, while the worst performing strategy was managed futures at minus 2.32%.

Monthly performance dispersion among Credit Suisse/Tremont hedge fund strategy indices continued to tighten in June to 637 basis points (bp) after peaking in April at 1,474 bp.

Over June the average performance for the 7,000 hedge funds tracked by Lipper was a negative 0.29%. A 111.90-percentage point monthly performance difference in June divided the top and bottom performers of the 7,000 actively reporting hedge funds tracked by Lipper.

In June all hedge fund strategies experience a strong and growing correlation against the MSCI World TR Index for the six and 12-month periods with the exception of managed futures, dedicated short-bias, equity market-neutral and long/short equity for the six months period and dedicated short-bias for the 12 months period, reported Lipper.

This did not help straggles to become immune to the slump in global equity markets at the end of June.

No strategy flipped correlation from positive to negative. Most managers expected the global stock markets to continue their rally in June. However, the MSCI World TR Index posed a negative return of 0.41% at the end of June for the first time since March this year. Various strategies were hurt by the dip in global equity markets.

The magnitude of the correlations of emerging markets was larger than those of the equity-based style.

At the same time emerging markets outperformed long/short equity for the six-month period while the MSCI World TR Index posted a positive 6.79% return for the same period. Emerging markets did under perform long/short equity for the 12-month period with the MSCI World TR index posting a fall of 29.01% over the period.