Hedge fund strategies provided significant downside protection for investors in July, according to data from Eurekahedge.

Downside protection
Hedge funds provided strong downside protection for investors in July against a backdrop of macroeconomic uncertainty arising from the deepening sovereign debt crisis in Europe and the fractious debate on raising the US debt ceiling. The Eurekahedge Hedge Fund Index gained 0.44% in July, while the MSCI World Index dropped 2.59% for the month.

Long/short equity funds were flat for the month, registering a return of 0.04%. However, the strategy still outperformed global equity indexes in July. The S&P 500 dropped 2.15%, the MSCI Europe Index lost 4.40% and the MSCI Latin America Index declined by 3.97% for the month.

CTAs shine in turmoil
The Eurekahedge CTA/Managed Futures Hedge Fund Index gained 1.87% in July, the strongest performance of any hedge fund strategy. CTAs profited from strong trends in commodities as gold rallied to new highs amid increased risk aversions and copper and agricultural commodities ran higher on supply concerns.

The Eurekahedge Distressed Debt Hedge Fund Index registered losses for the third consecutive month as concerns over European and US sovereign debt weighed on valuations. However, distressed debt remains the most profitable hedge fund strategy of 2011, up 4.7% year to date. Arbitrage strategies were hampered by heightened volatility and wider credit spreads and finished the month down 0.05%.

Global macro comes good
The Eurekahedge Global Macro Hedge Fund Index gained 0.93% in July as managers made good use of their broad mandates to generate positive returns in volatile market conditions. Currency, commodity and fixed income positions contributed to a strong month for many macro managers.

Multi-strategy hedge funds had a mixed month. The Eurekahedge Multi-Strategy Hedge Fund Index was down 0.30% in July. Performance was dragged lower by European multi-strategy funds, which were down 0.48%, while Asian managers made positive returns of 1.1%.

The Eurekahedge Relative Value Hedge Fund Index lost 0.54% in July as heightened volatility worked against the strategy.

Fixed income remains steady
Fixed income hedge funds have delivered consistent returns in 2011 with only one negative month. The trend continued in July as the Eurekahedge Fixed Income Hedge Fund Index gained 0.41%. The index is up 3.43% year to date as managers continue to benefit the easy monetary conditions and low default rates, which have created an ideal environment for fixed income strategies.

The Eurekahedge Event Driven Hedge Fund Index was down in July with a loss of 0.13%. Performance differed across regional managers. European funds delivered a gain of 1.44%, while North American event driven funds declined 0.40%.