Merger Arbitrage, Market Defensive Strategies Golden

Mar 16 2007 | 12:25pm ET

Distressed securities and emerging markets hedge funds were good places to be last month, but nothing beat an investment in merger arbitrage, which outstripped all other strategies by a wide margin in February, according to Hedge Fund Research.

The firm’s HFRI indices, which track a total of 6,500 products, show merger arb up 2.92% last month and 5.24% year-to-date. Distressed securities (1.61% in February, 3.17% YTD) and emerging markets (1.45%, 2.91% YTD) were a distant second and third.

The overall HFRI Fund Weighted Composite Index rose 0.66% during the difficult month, bringing it to 1.81% on the year. No strategy was in the red; the worst performer was the relative flat HFRI Macro Index (0.05%, 0.59% YTD).

Fund of funds returns were somewhat more muted, the HFRI Fund of Funds Composite Index returning 0.80% on the month (2.08% YTD). Predictably, given the market plunge at the end of February, market defensive funds of funds did the best, returning 1.08% (2.03% YTD).

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