Hedge funds returns, as measured by the S&P Hedge Fund Index, gained 0.07% in November returning back to positive territory after a poor October showing, Standard & Poor’s reported today. Year-to-date, the S&P HFI has returned 2.01% through the end of November.
“After the sharp sell-off in October, most markets not only recouped their losses but also reached all-time highs on the heels of supportive economic and corporate data,” says Charles Davidson, senior hedge fund specialist at Standard & Poor’s. “As corporate earnings continued to be strong and positive economic data continued to emerge, the risk tolerance of investors returned – and with that the performance of hedge funds.”
Equity Long/Short managers were among the main beneficiaries of the market reversal in November, as the S&P Equity Long/Short Index gained 2.48% for the month. By increasing their net exposure, which had been taken down during the sharp correction in October, managers were able to benefit from the equity rebound in November.
The S&P Managed Futures Index returned a sturdy 4.19% return during November, as the Managed Futures strategy turned in a very strong month. Large gains were made in currencies, primarily from long positions in the US dollar versus European and Asian currencies. Long metals exposure was also a major contributor to performance, particularly positions in copper and gold. Long equity index positions benefited from the global rally.
The S&P Event-Driven Index gained 0.45% during November, with continued high levels of activity in mergers & acquisitions, buyouts and restructurings continuing to provide attractive opportunities. Many managers took gains in November as spreads began to tighten over news that an agreement had been reached between Guidant and Johnson & Johnson with respect to a deal repricing.
“M&A managers used October’s correction as an opportunity to add to high conviction trades – those deals that they feel have the best chance for high returns,” says Davidson. “Managers now feel comfortable that there is sufficient liquidity in the marketplace to improve financing risk despite the increasing size and number of deals being completed.”
The S&P Arbitrage Index declined 1.26% during November, led lower by the underperformance of convertible and fixed income strategies. Convertible Arbitrage managers, particularly those in the US, had a difficult month as negative sentiment – reflected in widening spreads on some credits – returned to the strategy after a short rally during the past few months.