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October a Washout for Europe Funds

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LONDON (–Hedge funds in Europe had a rough October, with most strategies posting negative numbers, according to two leading indexes.

The FTSE Hedge Index was down 1.5% last month and is up just 1.5% for the year through Oct. 31. Meanwhile, all the strategies in the Edhec Investable Hedge Fund Indexes reported losses except convertible arbitrage, which has had a less than stellar year overall, with a drop of 3.1% so far in 2005.

The best performance in the FTSE index came in the non-directional arena, where fixed-income relative value managers gained 0.6% in October and are up 2.9% for the 12 months ending Oct. 31. Rising interest rates, inflation and tough talk from the U.S. Federal Reserve contributed to the woes of directional and event-driven managers, FTSE indexers said in their monthly report.

Equity hedge funds were down 3.5% last month and were hit hard due to their long bias to equity markets. Commodity trading advisers (down 0.2%) and global macro managers (negative 0.4%) also were hit hard by long positions in equities, bonds and energy, according to FTSE.

In the tally kept by Edhec, CTAs fared even worse, with a negative return of 1.49% last month. The worst-performing strategy in the investable indexes in October was long/short equity, which gave up 2.41% and is up a meager 2.13% for the year to date.

Equity market neutral managers lived up to their name and avoided market-related losses for the most part. Last month their strategy was down 0.53%, but Edhec reports for the year through Oct. 31 the category gained 5.2%.

“The returns for the month of October confirm the general trend over the last year, where hedge funds have performed below their historical average,” Edhec officials wrote in their monthly report. “Convertible arbitrage is the only strategy that maintained positive returns this month and actually stayed close to its historical mean return in posting a positive return for a fifth month in a row.”

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


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