November sees hedge funds outperform underlying markets by 2.6%

The Eurekahedge Hedge Fund Index was down 0.65%1 in November amid larger declines in global markets. Risk aversion remained high during the month with the Euro zone debt crisis continuing to dominate investor sentiment. Although the month started with gains in equity markets, mid-month trend reversals and a strong rally at month’s end made it a tough investment environment. The MSCI World Index2 witnessed losses of 3.22%.

Key highlights for November:

* CTA/managed futures hedge funds gained 0.71% in November

* The Mizuho-Eurekahedge Top 100 Index remained in the black November YTD; up 2.66%

* Early reports indicated net positive asset flows to hedge funds in November 2011

* Hedge funds outperformed underlying markets by 2.6% in November



Most regional indices finished the month in the red, with the exception of North American hedge funds which were flat to slightly positive. After the strong rallies in October, a number of North American managers had indicated low net exposures for November to protect gains from the previous month. This cautious positioning helped the managers during most of the month while the last day rally, driven by the surprise move by central banks to provide liquidity, had mixed results. The S&P 500 declined 0.51% during the month.

Among other regions, Latin American and European hedge funds fared better than their Asian counterparts, with returns of -0.27% and -0.48% respectively. Similar to North American hedge funds, European hedge funds maintained low net exposures through the month, helping managers to avoid significant losses in a highly volatile environment. Early sell-offs were triggered in the markets by the possibility of a Greek referendum. November witnessed some significant events such as changes in the Greek and Italian governments, and failure of the ‘super-committee’ to reach an agreement on budget cuts, which drove the market swings. The MSCI Europe Index3 was down 4.96%.


Strategy Indices

In terms of strategic mandates, most strategies were loss making for the month. The best performance was delivered by the Eurekahedge CTA/Managed Futures Hedge Fund Index – up 0.71%. Trend followers posted the largest gains, with FX trades (such as long dollar positions) yielding significant profits for the managers. Long exposures to the Hang Seng Index negated some of the profits however. Short-term systematic traders also finished the month with small gains on the back of short positions in bonds. Macro investing hedge funds made gains through short exposure commodities and posted a positive return of 0.17% for November. Among other strategies, hedge funds investing in riskier assets witnessed the largest losses; the Eurekahedge Distressed Debt Hedge Fund Index was down 1.75% while the Eurekahedge Long/Short Equities Index lost 1.77% during the month.