HFRX Indices October 2011 performance notes

Complete indices

Financial markets posted strong gains in October as equity markets recovered from two months of sharp declines with broad market advances led by strength in small cap, Energy and Technology sectors. Credit tightened as US treasury yields rose while the yield curve steepened. The dollar generally fell against most major currencies, as general sentiment improved into month end regarding possible resolution of the European sovereign debt crisis. Commodities also posted gains, with Copper and Oil posting the strongest performance, while implied volatility declined sharply into month end. Hedge funds posted gains with contribution from Equity Hedge and Event Driven strategies, with the HFRX Global Hedge Fund Index gaining 0.81% for the month.

Event Driven strategies had the strongest contribution to index performance, with the HFRX Event Driven Index gaining +2.1% for the month. All ED sub-strategies posted gains on tightening credit, broad equity market gains and tightening risk arbitrage spreads, with Distressed posting the strongest gains; the HFRX Distressed Index gained +3.06% for the month. Equity sensitive Special Situations and Merger Arbitrage also posted gains, with these indices +2.0% and +1.3%, respectively, for the month.

Equity Hedge funds also had a significant positive contribution to index performance, with the HFRX Equity Hedge Index gaining +1.36%. Equity Hedge experienced broad based gains across nearly all sub-strategies, with Fundamental Value +1.23% and Equity Market Neutral +0.60%. Gains in Energy, US large cap and Technology were only partially offset by short position hedges and mixed performance in Asian exposure. Mean Reverting, Factor-based models posted the strongest gains in Equity Market Neutral as volatility declined.

The HFRX Relative Value Arbitrage Index gained +1.16%, as credit tightening and energy infrastructure exposure was only partially offset by falling volatility and rising treasury yields. The HFRX RVA: Multi-Strategy Index gained +1.4% while the HFRX Convertible Arbitrage Index declined by -0.55% on rising yields and falling volatility.

The HFRX Macro/CTA index posted a decline of -1.99%, with broad based declines in systematic, trend following strategies only partially offset by gains in discretionary strategies. The HFRX Macro Systematic Diversified Index declined by -4.84%, as many trends reversed throughout the month with negative contributions from short exposure to equities, long fixed income and long US dollar exposure. Discretionary strategies had a partially offsetting positive contribution, with gains in commodity and currency exposure.