Van Global Hedge Fund Index Falls
Van Hedge Fund Advisors International, LLC (VAN)
Courtesy the Hedge Fund Association
Van Global Hedge Fund Index Falls –1.0% Net In April (2004)
Hedge Funds Outperform Broad Markets As Rising Interest Rates Spook Investors
The Van Global Hedge Fund Index lost -1.0% net in April according to industry consultant Van Hedge Fund Advisors International, LLC (VAN). The Index is one of the longest running indicators of average hedge fund performance and serves as a benchmark for the industry. The April Index return is based on the net returns of over 800 funds. Less than half of the funds in the April Index, 41%, posted a positive return for the month.
The Van Global Hedge Fund Index excluding Funds of Funds also returned -1.0% net last month. The Van U.S. Hedge Fund Index, which includes only U.S.-domiciled funds, lost -1.3% net in April, while the Van Offshore Hedge Fund Index, which includes only non-U.S.-domiciled funds, fell -0.8% net. Final Index results will be released at the end of the month, after additional hedge funds have reported their returns to VAN.
Hedge Funds vs. the Markets
It became clearer in April that the Fed won’t keep the federal funds rate at its historically low current level too much longer. Greenspan’s comments gave the stock market the jitters and added to the downward trend in bond prices, spelling a difficult month for investors of all sorts. Hedge funds did not emerge unscathed but they did manage to blunt the impact of market losses, outperforming many other investment options in April. For instance, two-thirds of funds in the Van Global Hedge Fund Index beat the S&P 500 last month. The Index’s -1.0% net loss in April, its worst loss since September 2002, did outperform the S&P 500’s -1.6% loss, the Average Equity Mutual Fund’s -3.2% loss and the Lehman Brothers Aggregate Bond Index’s -2.6% loss.
For the year to date, the Van Global Hedge Fund Index has gained 2.3% net of fees, placing it ahead of all major equity indices, which range from NASDAQ’s -4.0% loss to the small-cap Russell 2000’s 0.8% gain. The Lehman Brothers Aggregate Bond Index is flat for the year to date while the Average Equity Mutual Fund has returned a slight 0.2% gain.
Performance by Strategy Group
The Directional Trading Group was clearly the hardest hit by April’s hostile markets, falling -4.5% in the Global Index. The Directional Trading Group consists of Futures, Emerging Markets, and Market Timing strategy hedge funds, all of which saw losses for the month. Unsurprisingly, the Market Neutral Group fared best, gaining 0.1% net.
That group, which consists of Market Neutral Arbitrage, Distressed Securities, and Special Situations strategy funds, was the only one of the four Strategy Group Indices to post a gain. The two other Strategy Group Indices, Long/Short Equity and Specialty Strategies, fell -1.7% net and -1.3% net, respectively. For the year to date, all four Strategy Group Indices are positive, led by the Market Neutral Group’s 2.8% net return.
Performance by Individual Strategy
Among the fifteen individual strategies tracked by VAN, Futures fared worst by far in April, plummeting -6.9% net on a Global basis. Those funds, which often use quantitative systems to invest in financial derivatives, commodities, and currencies, can be quite volatile and were particularly impacted by last month’s rising interest rate environment. Emerging Markets, one of the Global Index’s strongest performers in prior months, fell -3.3% net in April. Short Selling, on the other hand, had the best return in the Global Index, rising 3.6% net. Such funds are typically used to help offset losses in the remainder of investors’ holdings during periods of market stress.
Last month marked only the second positive showing for Short Selling since March of last year as the equity market’s recovery during that period favored long-biased strategies. The only other winning strategies for last month were Distressed Securities, Income, and Market Neutral Arbitrage, which posted net gains in the Global Index of 1.4%, 0.4%, and 0.2%, respectively. For the year to date, Distressed Securities leads all strategies with a 6.2% net gain, followed by Emerging Markets at 3.5% net and Value at 2.5% net.
April Index Value
The Van Global Hedge Fund Index declined to a value of 10,884.00 in April. The Index began with a value of 1,000 in January 1988. Over its 16 year and four month history, the Index has generated a net compound annualized return of 15.7%, compared to a 12.2% compound annualized return for the S&P 500. Past performance of the Van Global Hedge Fund Index may be viewed at www.hedgefund.com.
Final April returns for the Van Hedge Fund Indices will be calculated at the end of May, after several hundred more funds have submitted their returns to VAN. Those results will supercede the returns reported herein. Final April returns for the Van Hedge Fund Indices will be posted at www.hedgefund.com when they become available.
Entry Filed under: Hedge Fund Strategy