NEW YORK (HedgeWorld.com)–Equity markets ended 2004 with a bang, but the noise provoked little more than a yawn from sleepy hedge fund strategies in the Standard & Poor’s Hedge Fund Index.
Despite returns for managed futures strategy of over 10% and U.S. long/short equity strategy returns over 6% for the quarter ended Dec. 31, hedge funds overall ended 2004 up just 3.88%, according to the S&P Hedge Fund Index. That compares with an 11% index return in 2003.
There were some positive signs at the end of the year, however. The S&P Directional/Tactical Index earned 1.45% in December, led by equity long/short managers. “After underperforming for much of the year, a strong fourth-quarter rally in U.S. markets has salvaged what appeared to be a weak year for equities,” said Charles Davidson, senior hedge fund specialist at S&P. “Through stock selection and increased market exposure, hedge fund managers were able to capture much of the positive revaluations in companies.”
Long/short equity strategies overall earned 1.33% in December and 4.34% in the fourth quarter, according to S&P. U.S. long/short equity strategies earned 1.62% in December and 6.17% for the quarter, while global long/short equity strategies earned 1.02% in December and 2.51% for the quarter ended Dec. 31.
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The S&P Event-Driven Index finished the 12-month period up 5.66%, the best overall return of any S&P sub index (the equity long/short index was launched March 31). For the quarter, event-driven funds in the index returned 3.66%. In December, they were up 1.33%.
Within the event-driven sector, distressed and special situations hedge funds performed well thanks to positive reevaluations of a number of companies in the energy and technology sectors, according to S&P. Balance sheets improved, which caused upward earnings revisions. Merger arbitrage managers contributed little to event-driven returns, since profits stayed low despite an uptick in the number of announced transactions.