NEW YORK (HedgeWorld)–Hedge funds in the Standard & Poor’s index followed up a decent December with a mostly negative performance in January.

Overall, the S&P Hedge Fund Index was down 0.47% for the first month of the New Year, with only the Arbitrage Index and Equity Long/Short Global ex-US in positive territory, at 0.31% and 0.74%, respectively.

The index finished December 2004 up 1.23%.

Managed futures had a tough start to the year, chalking up a negative 6.34% return. Among others in the red was the Directional/Tactical Index, at negative 1.66% for January, with all three of its underlying strategies–managed futures, equity long/short and macro–posting negative numbers.

Currency positions accounted for much of the losses among trend followers and discretionary global macro advisers, according to S&P. A continued pullback of energy and metal prices from their highs also had a negative impact.

“These sharp reversals, caused in part by uncertainty leading up to the Iraqi elections, were particularly difficult for many managed futures programs as these positions, young in existence, were quickly liquidated at stops placed outside the market,” said Justin Dew, senior hedge fund specialist at S&P, in a statement.

Within the arbitrage index, equity market neutral and fixed-income plays contributed to the positive performance. “In the equity market neutral sector, strong gains were seen in the European market as stocks resumed trading relative to each other in a manner which the statistical models could capitalize on,” Mr. Dew said.

The S&P Event-Driven Index was nearly flat for the month, down 0.06%. S&P’s analysis noted that merger arbitrage managers, despite increasing numbers of transactions and rising rates–with merger activity seemingly poised to heat up more this year–have yet to come back to long-term investment returns.

A difficult environment for U.S. stocks led to a loss of 0.18% for the long/short equity index, with the U.S. category turning in a negative 1.19% performance. Conversely, many European managers had their best results in several years.

The S&P 500 Stock Index posted a negative 2.53% return in January.

Contact Bob Keane with questions or comments at: bkeane@investmentadvisor.com.