News headlines have focused on the poor performance of hedge funds for month of September. This was not a great period for gains. Many strategies may have been surprised by the Fed, but there were a few bright spots in a lackluster month. Only four strategies generated positive return across the major HFR hedge fund indices style benchmarks. Managed futures, equity market neutral, absolute return, and merger arbitrage showed gains, but the average return across all strategies was -1.5 percent. The S&P 500 was down approximately 2.5 percent. Four strategies did worse than the stock index. There was nothing to be proud about this behavior, but there was diversification benefit from hedge funds.
On a year to date basis, there has been greater return dispersion across strategies as should be expected. The S&P 500 was down 529 bps through the first three quarters, but hedge funds, on average, were down only 188 bps for the year. What is interesting is that event-driven and special situations underperformed versus the equity benchmark. Market directional and EM composite also showed poorer performance. One should expect that all of these strategies should provide more diversification versus holding a long-only stock basket.
The market stand-outs include absolute return, absolute market neutral, and merger arbitrage. Merger opportunities in 2015 have been better on the back of cheap financing. Generally, merger arbitrage is highly correlated with the number of opportunities. The market neutral managers have down better with the increase in stock dispersion. Overall, this has not been a good nine months for hedge funds. Expectations are for better absolute return and not stories of relative performance against poor stock returns. Nevertheless, there is strong return dispersion across styles. All hedge funds are not the same.
No comments:
Post a Comment