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Portfolio > Alternative Investments > Hedge Funds

Hedge Fund Index Posts Mild August Gain Amid CTA R

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WHITE PLAINS, N.Y. (–Hedge funds in the CSFB/Tremont* Hedge Fund Index posted a mild gain of 0.85% in August; pushing the alternative benchmark back into positive territory for a year-to-date showing of 0.82%.

The positive August showing for hedge funds came in contrast to the Dow Jones Industrial Average, which lost 0.84% for the month and hit a negative 13.55% for the year. The Standard & Poor’s 500 stock index gained 0.49% in August but was still down by 20.21% for the year.

The strongest showing of any sub-index for the alternative benchmark in August came from managed futures trading advisers. CTAs as a group reported a return of 3.36% in August, representing the fourth consecutive monthly gain for futures-oriented trading programs. Each of the monthly gains was in excess of 3% and year-to-date returns for the managed futures component of the CSFB/Tremont Hedge Fund Index stood at 15.87% at the end of August. CTAs credited the strong showing on continued trending in both commodities and currencies, across a broad base of markets and instruments.

The recent futures rally puts CTAs in a position to post their best year on record since 1998, when the managed futures component of the alternative benchmark gained 20.6%. Futures traders are already running ahead of the next-best year on record, 1996, when managed futures programs posted an annual gain of 11.97%.

August ended a two-month slump for long/short funds, which gained 1.01%, but remained down 2.52% for the year. However, performance within the long/short camp seemed to vary widely. Managers who posted stronger returns for the month said that risk management was paramount to protecting performance during August market volatility and that gains came through cherrypicking value names rather than through broad moves in the market. Funds of funds executives? also suggested that many long/short managers continued to keep 25% or more of their cash on the sidelines, awaiting better buying opportunities on the long side.

As long/short funds did better, short-biased managers gave up some of their gains, losing 1.58% for the month and trimming year-to-date performance to a still respectable 12.27%–the best showing on the index behind managed futures.

The only other strategy to hold on to double-digit returns for the year was global macro. Buoyed by some of the same trends in currencies and commodities that lifted managed futures programs, global macro funds gained 1.22% for August, leaving returns at 10.68% on the year.

Fixed-income arbitrage hedge funds gained 1.23% in August, lifting year-to-date returns to 8.60%. Emerging markets funds picked up 1.26% for the month, adding to year-to-date gains tallied at 5.18%.

Milder gains were seen for event-driven, equity market-neutral and convertible-arb funds. In August, event-driven funds picked up 0.27% while remaining down on the year by 2.94%. Equity market-neutral funds gained 0.57% for the month, adding to a return of 5.82% for the year. Convertible arb funds returned 0.6%, but remained in negative territory year-to-date, off by 1.96%.

Three funds were dropped from the CSFB/Tremont Hedge Fund Index in August, lowering the number included to 388. Funds dropped from the index were Rudman Partners LP and HCM High Yield Opportunity Fund LP, both due to reporting rules. Also dropped was Alliance Alpha Partners LP, which stopped reporting, according to TASS.

The index itself is constructed using the TASS database of more than 2,600 hedge funds. In order to qualify for inclusion, a hedge fund must have US$10 million under management, a 12-month track record, and an audited financial statement.

*Tremont Advisers Inc., Rye, N.Y., is a strategic partner of and a minority investor in HedgeWorld.


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