May was the worst month for hedge funds in a year and a half, according to Hedge Fund Research.
The average fund fell 2.26% last month, the HFRI Fund Weighted Composite Index shows, slashing its year-to-date gain to 1.28%. Just three of the 23 strategies and substrategies traced by the HFRI indices were in the black in May, including short-bias funds, which soared 6.99% (down 4.37% year-to-date), no surprise given that the Standard & Poor’s 500 Index plummeted nearly 8%.
It was the worst month for hedge funds since November 2008, at the height of the financial crisis.
“Hedge funds were broadly impacted by the sharp increase in risk aversion associated directly with the sovereign bond crisis escalation, as well as the effects this situation has had on global equity markets, corporate fixed income and currency markets,” HFR said.
Given the international scope of the sovereign crisis, emerging markets funds were especially hard-hit, dropping an average of 6% (down 1.46% YTD). Russia and Eastern Europe funds fell 9.98% (up 0.8% YTD), while Asia ex-Japan funds lost 5.67% (down 3.14% YTD) and Latin America funds 5.32% (down 5.47% YTD).
Energy and basic materials funds lost 4.17% (down 0.72% YTD, equity hedge funds 3.69% (up 0.29% YTD), technology and healthcare funds 2.82% (up 0.34% YTD) and distressed and restructuring funds 2.76% (up 4.28% YTD).
Joining short-sellers on the winning side were asset-backed fixed-income funds (up 1.08% in May, up 6.73% YTD) and equity market neutral funds, which lived up to their billing by adding 0.23% (up 0.96% YTD).
Funds of hedge funds lost 2.84% on the month and are down 0.55% YTD.