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Distressed Leads the Way in Dow Jones Indexes

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NEW YORK (–There was nothing distressing about distressed securities returns in 2004, at least not as far as the Dow Jones Hedge Fund Indexes were concerned.

Distressed managers, who seek out securities issued by companies that are in or just about to emerge from bankruptcy, earned 14.74% year-to-date through Dec. 31, according to estimates from Dow Jones Indexes. Distressed managers in the Dow Jones index finished the year on a high note, with a 2.93% return in December. Returns for much of the year were essentially flat, until the fourth quarter, when they took off.

Event-driven strategies performed second-best in 2004, returning 10.22% for the year ended Dec. 31, according to Dow Jones Indexes. They also had the second-best return in the month of December, up 1.79%. Event-driven strategies, which seek to profit from market reaction to mergers, acquisitions and other corporate transactions by taking arbitrage positions, also spent most of the year in flat return territory before jumping late in the year.

Other hedge fund strategies tracked by Dow Jones Indexes had more lackluster years. For instance, the Dow Jones Hedge Fund Merger Arbitrage Strategy Benchmark was up 3.58% for the year after posting a 1.07% gain in December. The equity long/short benchmark was up 2.59% in 2004, and 1.25% in December. Convertible arbitrage managers tracked by the Dow Jones Indexes returned 1.53% year-to-date through Dec. 31, and 0.67% in December. Equity market neutral strategies earned 0.75% in 2004 after posting the indexes’ sole negative return in December, negative 0.49%.

Only distressed and event-driven strategies outperformed the two benchmarks against which Dow Jones Indexes compared the hedge funds’ returns: the Dow Jones U.S. Total Market Index (up 12.01% in 2004) and the Dow Jones Corporate Bond Index (up 6.25% in 2004).

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Contact Bob Keane with questions or comments at: [email protected].


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