|S&P 500 Index*||0.71%||6.25%||20.27%||Large-cap stocks|
|Nasdaq Comp.*||1.45%||9.70%||46.78%||Large-cap tech stocks|
|Russell 1000 Growth||1.05%||6.73%||25.41%||Large-cap growth stocks|
|Russell 1000 Value||1.36%||7.56%||22.48%||Large-cap value stocks|
|Russell 2000 Growth||3.26%||12.18%||47.88%||Small-cap growth stocks|
|Russell 2000 Value||3.84%||12.30%||40.93%||Small-cap value stocks|
|MSCI EAFE||2.24%||8.62%||29.08%||Europe, Australasia & Far East Index|
|Lehman Aggregate||0.24%||-0.69%||3.06%||U.S. Government Bonds|
|Lehman High Yield||1.52%||3.57%||26.12%||High-yield corporate bonds|
|Carr CTA Index||-0.19%||1.69%||12.35%||Managed futures|
|3-month Treasury Bill||.||.||0.93%|
|Through November 30, 2003. *Return numbers do not include dividends.|
With the stock market holding onto its impressive gains, a number of pundits are calling this recent run a sucker’s rally. From a valuation standpoint, it’s easy to see why. Internet-related issues such as Yahoo! and eBay, among others, are trading at a trailing P/E of over 100. If the potential growth of such names does not justify their valuations, it seems logical that stocks may be in for a corrective phase. The fixed-income sector has its fair share of detractors as well. Short-term interest rates cannot be artificially held low forever; when the Fed finally decides to hike, bonds could be summarily slammed.
Government paper isn’t the only thing that thoughtful investors are worrying about. Accounting troubles at Freddie Mac have created some concern for the mortgage-backed security market. And one shouldn’t forget the trouble convertible bonds ran into this past summer.
What do these doomsday scenarios hold for hedge fund investors? Probably not a lot. According to a number of recent studies, hedge fund factor exposures (the measure of what drives returns) are far from stable–a fancy way of saying that hedge fund portfolios are likely to change with market conditions.