Hedge Funds Fall In October

Nov 8 2012 | 2:00pm ET

Hedge funds lost some ground during a difficult and doubtful October, as stocks slid and investors anxiously awaited Tuesday's U.S. presidential election.

The average hedge fund fell 0.49% last month, according to Hedge Fund Research's HFRI Fund Weighted Composite Index. The benchmark is now up 4.33% on the year.

"Hedge fund performance in October reflected a definitive shift in investor sentiment from the beta-driven optimism over steady improvements in stagnant global economies to the realities, risk and uncertainly inherent in additional European banking stabilization measures, U.S. elections and the pending fiscal cliff,” stated HFR President Kenneth Heinz. “Fundamentally-based arbitrage, event and equity strategies demonstrated effective hedging against and tactical adjustment to these dynamic changes, while trend following, quantitative macro strategies experienced weakness as a result of them. Under the expectations of elevated financial volatility through year end, hedge funds which have effectively demonstrated their ability to navigate this environment will continue to attract institutional investors.”

Relative-value funds rose 0.55% (8.55% year-to-date), event-driven 0.22% (5.51% YTD0 and equity hedge funds 0.16% (5.68% YTD). Macro funds, however, took a big hit, falling 2.19%, dragging it into the red for the year at 1.33%.

Most of HFRI's sub-strategies were in the black last month, with the notable exception of systematic diversified funds, which fell 3.47% (down 3.46% YTD), energy and basic materials funds 1.76% (down 4.48% YTD) and technology and healthcare funds 1.08% (up 5.93% YTD).

On the other side, only fixed-income asset-backed funds managed a positive return about 1%, rising 1.27% on the month to increase its league-leading year-to-date return to 14.37%. No other strategy or sub-strategy is up in the double-digits this year; no other has managed to post positive returns in each of the year's first 10 months, either.

Funds of hedge funds lost 0.45% on the month and are up 2.95% on the year.


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Editor's Note