1 Dec 2011
Man on the month: October
Man report that the challenging second half of the year continued in October. The overall dispersion of returns during the month was the widest ever recorded by Man’s hedge fund research team, with more than a third of managers either making or losing more than 5% in one month.
In terms of style performance, equity hedged posted strong gains as those exposed to more cyclical sectors outperformed, and equity hedged posted its best monthly gain of the year. The MSCI World Index ended up 8.7% (compared with -6.0% in September), while the HFRI Fund of Funds Composite Index added 1.4%.
Meanwhile, managed futures saw the largest losses as they generally entered the month with a ‘risk off’ positioning and were consequently impacted as markets rebounded strongly during October.
Man attributes the renewed risk appetite fuelled by a potential solution to Europe’s sovereign debt problems and some optimism over the economic outlook as reasons for bonds falling. This improving sentiment also benefitted commodities with WTI crude oil (USD) rising 17.7%.
Man notes that equity hedge managers generally outperform in earnings season as they seek to pick winners and losers and this seasonality helped the HFRI Equity Hedge Index gain 5.2% in October, although the period proved challenging as individual stock correlations remained high.
The largest gains came from those exposed to more cyclical sectors like Energy and Materials (HFRI Energy/Basic Materials Index up 8.1%), while more defensive sectors made more moderate gains (HFRI Technology/Healthcare up 3.3%).
Geographically, the S&P 500 surged almost 11% for the month as US corporate earnings propelled the market and those with a steady long bias were able to modestly take part in the rally. However, some managers who had been outperforming ended down as stock-specific earnings news hurt more concentrated stock pickers. Those focused in Europe also posted a gain while managers trading Asian equities saw some of the largest profits (MSCI Asia Pacific ex Japan Index up 15.1%). However, again manager returns underperformed on the back of subdued net and gross exposures.
In event driven, the HFRI Event Driven Index posted its best monthly gain of the year in October, up 3.1%. All sub-strategies contributed positively as rising equity markets, tightening credit and M&A spreads boosted returns.
October proved difficult for managed futures (New Edge CTA Index down 3.7%) as most trend-followers entered the month with ‘risk off’ positioning following strong trends in August and September. Positions in stocks and bonds led to some of the larger losses but some small gains were made in the precious metals, silver and gold.
Global macro managers also struggled with a wide dispersion in returns again. Overall the HFRI Macro Index was down 1.4% over the month. Some of the larger losses in the global trading sub-style resulted from those who maintained a negative fundamental outlook. Meanwhile, performance remained mixed in the Emerging Markets space and commodity managers underperformed despite the S&P GCSI Index rising almost 10% as managers remained defensively positioned.
Relative value and event drivenThe HFRI Relative Value Index rose 1.5% over the month as tightening credit spreads aided returns. In fixed income arbitrage, US and European fixed income markets remained the focus with many benefitting from the anticipated reduction in rates in the first European Central Bank meeting under new head, Mario Draghi. Another popular trade included playing the sovereign credits of Europe, by taking long positions in some and short positions in others.
Man report that the challenging second half of the year continued in October. The overall dispersion of returns during the month was the widest ever recorded by Man’s hedge fund research team, with more than a third of managers either making or losing more than 5% in one month.
In terms of style performance, equity hedged posted strong gains as those exposed to more cyclical sectors outperformed, and equity hedged posted its best monthly gain of the year. The MSCI World Index ended up 8.7% (compared with -6.0% in September), while the HFRI Fund of Funds Composite Index added 1.4%.
Meanwhile, managed futures saw the largest losses as they generally entered the month with a ‘risk off’ positioning and were consequently impacted as markets rebounded strongly during October.
Man attributes the renewed risk appetite fuelled by a potential solution to Europe’s sovereign debt problems and some optimism over the economic outlook as reasons for bonds falling. This improving sentiment also benefitted commodities with WTI crude oil (USD) rising 17.7%.
Man notes that equity hedge managers generally outperform in earnings season as they seek to pick winners and losers and this seasonality helped the HFRI Equity Hedge Index gain 5.2% in October, although the period proved challenging as individual stock correlations remained high.
The largest gains came from those exposed to more cyclical sectors like Energy and Materials (HFRI Energy/Basic Materials Index up 8.1%), while more defensive sectors made more moderate gains (HFRI Technology/Healthcare up 3.3%).
Geographically, the S&P 500 surged almost 11% for the month as US corporate earnings propelled the market and those with a steady long bias were able to modestly take part in the rally. However, some managers who had been outperforming ended down as stock-specific earnings news hurt more concentrated stock pickers. Those focused in Europe also posted a gain while managers trading Asian equities saw some of the largest profits (MSCI Asia Pacific ex Japan Index up 15.1%). However, again manager returns underperformed on the back of subdued net and gross exposures.
In event driven, the HFRI Event Driven Index posted its best monthly gain of the year in October, up 3.1%. All sub-strategies contributed positively as rising equity markets, tightening credit and M&A spreads boosted returns.
October proved difficult for managed futures (New Edge CTA Index down 3.7%) as most trend-followers entered the month with ‘risk off’ positioning following strong trends in August and September. Positions in stocks and bonds led to some of the larger losses but some small gains were made in the precious metals, silver and gold.
Global macro managers also struggled with a wide dispersion in returns again. Overall the HFRI Macro Index was down 1.4% over the month. Some of the larger losses in the global trading sub-style resulted from those who maintained a negative fundamental outlook. Meanwhile, performance remained mixed in the Emerging Markets space and commodity managers underperformed despite the S&P GCSI Index rising almost 10% as managers remained defensively positioned.
Relative value and event drivenThe HFRI Relative Value Index rose 1.5% over the month as tightening credit spreads aided returns. In fixed income arbitrage, US and European fixed income markets remained the focus with many benefitting from the anticipated reduction in rates in the first European Central Bank meeting under new head, Mario Draghi. Another popular trade included playing the sovereign credits of Europe, by taking long positions in some and short positions in others.
