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July 17, 2006 at 08:00 PM
NEW YORK (HedgeWorld.com)–May’s losing streak did not end with that month but appears to have become less damaging, judging from hedge fund index data available so far. The Hedge Fund Research Fund Weighted Composite Index was almost flat in June, with a decline of 0.2%.
By comparison, the MSCI world equity benchmark lost 3.3% and world sovereign bonds gave up 2.7% during the month. We’re beginning the second half of the year and investors have earned little or no return from most financial assets regardless of the currency, wrote Jeffrey Schoenfeld, chief investment officer at Brown Brothers Harriman & Co.
Despite the turmoil of the past two months, the HFRI index is up over 6% year-to-date. That average conceals different patterns, although no hedge fund sector is in the red for the year so far.
For instance, the HFR fund of funds index lost 0.8% in June and is up 4% for the year, whereas a miscellaneous sector index lost almost 3% in June but is still returning 15% for the year. That is consistent with expectations: Typically funds of funds reduce volatility, but sacrifice some return to do that.
Recent performance also is consistent with the expectation that hedge funds should not lose as much as stock and bond markets. At least some hedge fund portfolios are really hedged and the flexibility to go to cash allows risk-conscious managers to moderate losses.
But the results do not support the promise of absolute positive returns in all types of markets, at least not for hedge funds as a whole. Certain strategies did deliver exceptionally strong performance in choppy markets: The HFR market timing index gained 4.4% in June and is up over 12% for the year.
