The rebound reflected the market partially rebalancing after two months of negative performance that entrapped the vast majority of funds. Though fear still abounded about the slowing world economy and a ‘double dip’ recession in Europe, investors were emboldened enough to engage in bargain hunting. This saw energy and other commodity focused equity funds make strong gains, while event driven managers rode the market rebound and pared earlier losses. Across the broad hedge fund universe the scale of the October rebound was reflected in a gain of +0.81% for The HFRX Global Hedge Fund Index.
Just as the UCITS Hedge Equity Long/Short Index suffered the biggest decline of our four sub-indexes in risk-off months, it engineered the biggest gain through the October rebound, jumping 2.08%. That is the biggest gain for any sub-index since during the 22 months ago of data collection. The gain follows on August and September losses which registered the biggest performance losses since the database’s inception. It also served to cut the year-to-date drawdown to -5.11%. Technology/health care and directional trading strategies made the biggest gains, while funds with low net exposure trailed the pack.
The macro backdrop to October featured a growing unease about the resilience of Italy’s public sector finances. The leaders of Germany and France pointedly urged the Italian government to adopt reform, a move that led to the fall of Prime Minister Berlusconi’s regime in early November. On a positive note, expectations of improved Chinese economic growth helped commodities prices firm. Towards the end of October volatility replaced the more positive directional trend that coursed through many markets earlier in the month.
The Relative Value Index put in the second strongest performance, rising 0.71% in October. This helped to pare its 2011 drawdown to -0.87%, making it the best performing sub-index for both the year and since the inception of the database. The Macro Discretionary Index eked out a 0.16% gain, but that wasn’t enough to stop it sliding below the Equity Long/Short Index to become the worst performer in 2011 to-date with a drawdown of -5.12%.
Meanwhile, the Macro Systematic Index lost -0.38%, increasing the losses it chalked up over the spring and summer. However, the scale of those losses continues to be manageable, reflected in a year-to-date drawdown of -2.11% - making the strategy the second best performer over 2011, so far.
The four strategy indices reported here represent the bulk of the total universe of funds in the database, while the master index tracks all those funds with hedge fund characteristics as defined by our methodology. In addition, we are also tracking a growing number of absolute return UCITS funds (i.e. with no benchmark index but also no active management of the short book) as part of our data gathering activities, although we will not be publishing an index using this data until the universe becomes more comprehensive. In all, the database is now tracking over 400 funds.
All our indices are comprised of UCITS III compliant hedge funds that are currently reporting to our database. The dominant strategies in the universe are long/short equity, event driven and macro, although we are also now publishing a master index that incorporates the performance of all the funds in the database, apart from absolute return funds and funds of funds. We publish both equal and asset weighted versions of each strategy index electronically for our database subscribers. In the hard copy editions of The Hedge Fund Journal we are using equal-weighted indices.
The indices have a ‘live’ date of 1 January 2010, although performance as published here is to the end of October 2011. Subscribers to our database will receive index performance data as part of their subscription package, and they are also available via our demo account facility.
To register your fund in the UCITS Hedge database, or to arrange a demo account if you are interested in subscribing, please email Renaud Cohard at renaud.cohard@thehedgefundjournal.com
