June 10, 2005

Indexes Indicate Turnaround in Hedge Fund Returns; Convert Arb Remains in Doldrums

NEW YORK (HedgeWorld.com)--Data from several index suppliers suggest that a stock market resurgence and increasing merger activity buoyed some hedge fund strategies in May.

According to a preliminary release, the Van Global hedge fund index gained 1.2% for the month. That was in line with rebounds seen in the FTSE hedge fund index and Dow Jones hedge fund benchmarks.

The long/short equity and global macro components of the Van index performed well in May. Many long/short managers have a long bias, so it bodes well for them when the equity market does well, said Van Vice President Kevin Campbell. The Standard & Poor's 500 stock index returned 3.18% in May, including dividends. For the year through May 31, the S&P stands at negative 0.95%.

According to all three hedge fund indexes, convertible arbitrage continued its losing streak in May. Mr. Campbell said the strategy is unlikely to recover in June, but may see a rebound in the third quarter.

Convertible arbitrage managers have to liquidate assets to meet heavy redemptions at the end of the second quarter and that will continue to put pressure on prices this month, he said.

Short-biased hedge funds, which were the winners among hedge fund strategies early in the year, lost out in May according to the Van report. They were hit by the rising stock market--just as long-biased managers benefited.

CKurdas@HedgeWorld.com

Contact Bob Keane with questions or comments at: bkeane@investmentadvisor.com.

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