There have been a growing number of articles on
hedge fund outflows and poor performance. This should not be surprising given
the year to date performance of many hedge fund strategies; nevertheless, September
was a good month for equity hedge fund strategies. Given the good September
performance for small cap, growth, and value indices, this should not be a
complete surprise. A simple comparison shows the HFR indices outpacing the
major equity style indices for the month. There were good alpha opportunities
for hedge funds. The biggest losers were global macro and managed futures
managers who were not able to take advantage of central bank actions or macro
themes. The focused attention on central bank announcements has been a negative
for macro traders over the last quarter.
The year to date HFR index returns show event and
distressed strategies continuing to do well, but the market directional index
now also generates good gains. However, the market directional index still lags
behind the major style beta indices. At the same time, the equity market
neutral and fundamental growth strategies have posted the worst returns. As we
enter the fourth quarter, hedge funds need to show significant improvement to
meet investor expectations.
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