NEW YORK (HedgeWorld.com)–Standard & Poor’s added its February hedge fund index returns to the growing collection of evidence that January’s slow start may not be a sign of a backslide in hedge fund returns.
The S&P Hedge Fund Index gained 0.83% in February, bringing its total return for the first two months of 2005 to 0.36%–not exactly a blazing statistic, and considerably below the S&P 500 Stock Index’s 2.1% return for the month–but certainly an improvement over January’s negative 0.47% return. The Dow Jones Industrial Index rose 2.63% in February. The Nasdaq Composite Index fell 0.52%.
S&P’s Event-Driven sub-index led the way in February, posting a 1.53% return. According to S&P officials, distressed and special situations managers benefited from rising oil prices and overall upward movement in natural resource holdings. Increased merger activity also helped add some spice to February’s returns, said Charles Davidson, S&P’s senior hedge fund specialist, in a statement.
“Merger Arbitrage managers are finally starting to see opportunities in what has become an increasingly favorable environment,” Mr. Davidson said. “The positive tone in M&A activity is reflected in the upward price moves on acquirers’ stocks after announcements.”
In S&P’s Directional/Tactical sub-index, equity managers got the biggest boost. The S&P Equity Long/Short Index gained 1.8% on rallying markets, strong stock selection by managers and a trend toward more concentrated holdings, S&P officials said in a news release.
The S&P Managed Futures sub-index, which includes 14 medium- to long-term trend-following managers, turned in the only negative performance among the various S&P indexes at negative 0.14%. That piled on a dismal negative 6.34% return in January. S&P officials described the problems as being related to losses in long grains and government bond positions that offset gains in energy and index futures. Currency returns were split as trading programs either hit stops and reversed or went to neutral as the dollar slid against major foreign currencies.
Meanwhile the S&P Arbitrage Index inched up 0.29% in February, giving it a 0.6% return for the year thus far. “Many Convertible Arbitrage managers continue to find difficulties in this low volatility environment resulting in small increases in leverage,” Mr. Davidson said. “Results in fixed income were mixed with yield curve traders outperforming those in the mortgage-backed space.”
The S&P Hedge Fund Index currently tracks 41 constituent funds grouped into three sub-indexes: Arbitrage, Event-Driven and Directional/Tactical. Within those sub-indexes are nine strategies–equity market neutral, fixed-income arbitrage, convertible arbitrage, merger arbitrage, distressed, special situations, equity long/short, managed futures and macro.
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