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June 05, 2006 at 08:00 PM
NEW YORK (HedgeWorld.com)–Major hedge fund sectors across the board lost heavily in the past month but not as much as market indexes, according to Merrill Lynch research. Year-to-date hedge fund returns remain significantly positive despite the down month.
The average of several diversified hedge fund indexes lost about 1% for the past month as of May 22, analyst Mary Ann Bartels showed in the Merrill Lynch report. Long/short equity lost 2.6%, macro funds lost 2.7% and managed futures 2.3%.
But year-to-date these strategies have gained 4.4%, 2.3% and 5.4% respectively, as indicated by the average of various indexes. Hedge funds as a whole made 3.8% for 2006.
U.S.-only long/short equity was the worst-performing group (for which data was available as of May 22). Convertible arbitrage and distressed credit are the only two sectors that notched positive returns for the past month.
Convertible arbitrage–interestingly, a strategy that investors have been deserting–was up 1.4% for the last 30 days and 4.7% for the year. That may be a result of large asset outflows, with the smaller amount of capital now in the convertible market allowing better deals for remaining traders.
For some managers, worse is yet to come. It’s been a very tough month, said Ken Phillips, a hedge fund investor and managing principal at RCG Capital Advisors LLC. In particular he expects sharp drops in emerging markets portfolios, especially as such funds lean heavily to the long side of the market–short selling is relatively rare.
