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Portfolio > Asset Managers

Event-Driven, Distressed Funds Lead DJ Index

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NEW YORK (–Dow Jones reports that event-driven strategies performed well in what was an uneventful year for the stock market in general.

Both event-driven and distressed managers pulled through to each top 6% in 2005, according to Dow Jones Hedge Fund Index officials, doing slightly better than equities. The Dow Jones Wilshire 5000 index was up 6.38% at year-end.

Last month, event-driven managers gained 1.53% and returned 6.5% net of fees for the year through Dec. 31.

Event-driven managers generally capitalize on arbitrage opportunities stemming from the market’s reaction to specific transactions. An increase in merger and acquisition activity may be behind event-driven managers’ success, as most did battle with lower levels of market volatility. While 2005 performance was better than most other strategies, event-driven managers did better in 2004, when they were up 10.36%.

Distressed securities managers were up 6.48% for the year, which was likely disappointing after 2004′s gain of 15.46%. It does the fourth consecutive year that the category has posted gains, officials said.

As has been the case for event-driven and distressed funds, merger arbitrage managers had a down year in 2002, followed by three years of gains. In 2005, the Dow Jones merger arbitrage index was up 2.91%.

Convertible arbitrage managers are less likely to reminisce about 2005. The Dow Jones Hedge Fund Convertible Arbitrage Strategy Benchmark was down 5.56% in 2005. Rumors of large hedge funds struggling with their convertibles holdings in May and June gave many investors reason for pause. For managers in the Dow Jones index this is the second year of lagging returns. At the end of 2004, convertible arbitrage managers returned only 1.52% and on an annualized basis gained only 4.39% over the last four years.

The U.S. long/short equity benchmark index had its first full calendar year of returns with a gain of 3.07%. Meanwhile, equity market neutral was up 1.73% in 2005.

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


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