Hedge Funds Lost Money in October

October was a rotten month for hedge funds:

Hedge funds lost money overall in October, while strategies that trade equities fared the worst as stock prices fell, French business school Edhec said.
Long/short equity hedge funds which buy and short sell — sell a security on the expectation of buying it back cheaper at a later date — lost 2.41 percent on average in October, knocking their year-to-date returns down to 2.13 percent.
That compares with losses of 1.98 percent in October for the MSCI index of world stocks and gains of 7.10 percent in the 10 months since January.
“The month of October was characterised by the poor performance of global stock markets,” Edhec said in a statement.
“Value and small cap stocks performed even worse than the broad stock market. Stock market volatility rose.”
The Chicago Board Options Exchange’s Market Volatility Index, also known as the fear gauge and a benchmark measure of U.S. stock market volatility, hit a five-month peak of 17.19 on October 13, but has since slipped to around 13.
However that rise in volatility allowed one group of hedge funds, those that trade the different components — bond, equity, volatility — of convertible bonds, to make positive returns for the fifth month running.
Convertible bond hedge funds returned 0.24 percent in October although in the year to date they are still down 3.10 percent.
Managed futures funds, those that take directional bets in bond, stock, currency and commodity markets using computer models that give out buy or sell signals, lost 1.49 percent in October and year-to-date are up only 0.15 percent.
Event-driven strategies, which include those that aim to profit from potential takeover deals, were down 1.35 percent but up 1.28 percent for the first 10 months of this year.
“The returns for the month of October confirm the general trend over the last year, where hedge funds have performed below their historical average,” Edhec said.

Posted by on November 9th, 2005 at 10:34 am


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