Hedge Funds Up 0.38%, Paced By Macro, Relative Value

Sep 13 2010 | 12:19pm ET

Hedge funds lost momentum in August, posting small gains after July’s strong returns.

The average hedge fund rose 0.38% last month, according to the HFRI Fund Weighted Composite Index. The index is now up 1.65% on the year.

Short-bias funds did especially well on the month, adding 3% amidst a market downturn. Short funds remain down 4.76% on the year.

Macro, relative value and emerging markets were the only major strategies tracked by the Hedge Fund Research benchmarks to record gains in August. The former rose 2.16% (1.02% year-to-date)—with systematic diversified funds enjoying the strongest month of any strategy or substrategy with a 3.65% returns (1.81% YTD). Relative value funds added 0.81% (6.44% YTD), paced by fixed-income asset-backed (1.68% in August, 9.93% YTD), fixed-income convertible arbitrage (1.05%, 6.18% YTD) and fixed-income corporate (0.8%, 7.14% YTD).

Emerging markets funds were just barely in the black last month, despite the fact that three of the four regions tracked by the HFRI indices were in positive ground. The Emerging Markets (Total) Index inched up 0.01% on the month (1.76% YTD). Latin America funds were the strongest performer, rising 0.58% (1.54% YTD), followed by global funds (0.19%, 3.34% YTD) and Asia ex-Japan funds (0.13%, down 0.49% YTD). Only Russia and Eastern European funds suffered, dropping 0.95% (up 4.04% YTD).

Equity hedge funds lost an average of 0.92% in August (down 0.71% YTD). Quantitative directional funds were hit hardest, losing 1.28% (down 1.05% YTD), while energy and basic materials funds lost 0.7% (down 3.56% YTD). Equity market-neutral funds lost 0.57% on the month (0.39% YTD).

Event-driven funds were down marginally, losing 0.07% in August (up 4.53% YTD). Distressed and private issue funds were the culprits, shedding 0.39% (up 5.09% YTD) and 0.16% (up 8.29% YTD), respectively, while merger arbitrage funds rose an average of 0.45% (2.54% YTD).

Funds of hedge funds were up 0.01% in August, but are down 0.42% on the year.

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