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Portfolio > Economy & Markets > Fixed Income

Tremont Hedge Fund Index

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NEW YORK (–Managed futures strategies reigned in May on the CSFB/ Tremont Hedge Fund Index, gaining a solid 3.5% on the month while the wider benchmark picked up a more modest 0.7%.

“As a long-term trend follower, we were able to pick up on directional movements across a diversified number of markets,” said Richard Whited, president of Santa Barbara, Calif.-based Quicksilver Trading, which runs US$43 million in its futures-focused Quickpool LP and parallel managed accounts.

“It seemed that you had some nice movements in the South African rand and New Zealand dollar, but really it was a good months in a number of commodities, financials and forex markets–just some very good steady-state month that was excellent for CTAs,” he said.

A winning month of May was welcomed by managed futures traders, which as a group have been struggling against slumping returns in 2002. And although the May rally was a welcome change, managed futures trading advisers as a component of the CSFB/Tremont Hedge Fund Index remained down on the year through the month at negative 2.7%.

Meanwhile, the wider CSFB/Tremont Index’s 0.7% gain in May pushed year-to-date returns to 2.2% for the alternative benchmark. By way of comparison, the Dow Jones industrial average was down nearly 1% on the year, losing 0.2% in May. Over the same period, the Standard & Poor’s 500 stock index gave up about 7.1%, after losing about 0.9% for the month.

Another standout component of the alternative benchmark was fixed-income arbitrage, which gained 1.4% in May, leaving returns up a hearty 5.4% on the year.

“For fixed income, there’s a lot of caution going ahead because you have to be aware of the likelihood of the Fed raising interest rates,” said Gary Singleterry, president of Summit, N.J.-based Singleterry & Co.

“We’re not fixed-income arbitrage as much as we are value and mortgaged backs and in this area at least there is some concern about pre-pay risk. That being said, I think fixed income (alternative investing) is going to continue to attract attention from investors because there is a real desire for investments that are less correlated to the general markets,” he said.

“There have been a lot of calls from new investors and some new money has been dribbling in. Of course, the tough part is that some of the best performance in the short-term is arguably behind (value focused fixed-income) because of the outlook on interest rates, but that doesn’t seem to be turning off investors who are looking to diversify,” Mr. Singleterry said.

With the S&P 500 slumping in May, perhaps not surprisingly, dedicated short-biased managers as a group posted additional gains in May, picking up about 1.2% for the month and bringing results year-to-date to 1.5%.

Meanwhile, long/short managers trotted along steadily in May, picking up 0.8%, leaving year-to-date returns at about 0.7%.

Global macro did about the same in May, picking up roughly 0.8%. But global macro plays, which are not limited to equity investing, are doing better as a whole, sitting on a year-to-date gain of 5.5%–the second best showing of any component of the alternative benchmark in 2002.

Only emerging markets is doing better. Emerging markets funds, with year-to-date returns of 9.2%, are the top performers thus far in 2002. But May broke a multi-month winning streak for the sub-index, which lost 0.7% on the month.

Equity market-neutral funds gained about 1.3% in May, leaving returns so far in 2002 at about 2.8%.

Event-driven funds edged ahead slightly in May with a 0,1% gain that left year-to-date returns at about 2.9%.

The CSFB/ Tremont Hedge Fund Index is constructed using a database of about 2,600 hedge funds. Funds are not excluded until they liquidate or fail to meet the financial reporting requirements, in order to minimize survivorship bias. For inclusion, a fund must have US$10 million under management.


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