Will jittery investors evaluate hedge fund investments month by month

Hedge Fund News: Hedge fund indices for July average -2.17% (estimated): Will jittery investors evaluate hedge fund investments month by month, or by the larger credit cycle? From Kirsten Bischoff, Opalesque New York: As noted in Opalesque’s roundup of hedge fund indices last Friday (see coverage: here) the average industry estimated and approximate return for July was -1.84% (and -2.17% if you include the Eurekahedge HF Index(see below)).

However, asset classes cannot be ranked within a vacuum and as the global credit crunch continues, the argument can be made for the prudent investor to take a step back and review hedge fund industry performance in terms of market cycle and not on a month-by-month basis.

The credit crunch at large
The global economy is experiencing a period of serious deleveraging and systemic risk and a market environment has emerged to which the relatively new hedge fund industry has no historic reference. “The hedge fund industry did not exist in the 1930’s or the 1970’s so it is very difficult to say how hedge funds should do in this type of environment,” says Steve Gross, Principal at Penso Capital Markets.

Although this clearly marks the toughest time for hedge funds, the DJIA has posted -14.22% YTD, the NASDAQ -12.30% YTD and the S&P 500 -13.71% YTD. In comparison, the Eurekahedge Strategy Indices for hedge funds shows many strategies holding at -3% to -4% YTD with the macro and CTA strategies at +0.64% and +9.56% YTD respectively. “Hedge fund performance shows the strength of the industry when market aggregates are down 10-15%. Further, if you drill down into single stocks you would find a much larger depth of decline of equities in developed and emerging markets,” says Kevin Heller, Managing Director at $1.1bln Focus Asset Management.

Volatility: friend or foe?
“Volatility creates great trading opportunities, yet opportunities and risk go hand in hand,” said Ari Bergmann, Managing Principal at Penso Capital which this past February launched its global crisis strategy to take advantage of market volatility.

Fund managers often speak of requiring market volatility to achieve targeted results however, short term spikes and dislocations often require a return to balanced markets before position profits can be realized. “A spike in volatility is like a rain shower in August, it brings green grass for us down the road, at the point that volatility stabilizes or subsides,” says Scott Sykora, President of $410m asset manager LJM Partners.

Short terms spikes and dislocations which caused problems for so many strategies in July did not have the same negative effect across the board, as evident by the EurekaHedge Fixed Income Hedge Fund Index at +0.28%. Fixed income has taken some knocks over the past twelve months and for firms such as Reade Street Capital which manages the DMS Fixed Income Micro RV Fund and returned +1.11% in July (+18.64% YTD) the volatility is a welcome market condition. “Given that commodities have joined the credit crunch, it is apparent that the best asset class is one that takes full advantage of volatility itself,” says Reade Street Principal David Sukoff. “There is no indication that this trend will......................


Source:
http://www.opalesque.com/AMB2008/46194Hedge_fund_indices_for_July_average.html


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