| Hedge Fund Observer: decorrelation in question |
|
|
| 20/11/2005 | ||||||||||||||||||||||||||||||||||
|
Is faith necessary to continue believing in the decorrelation of hedge funds? Perhaps, a little might be, especially after October's poor performances, which closely mimicked the main broad-based market indexes. After posting positive results in September (1.76% for the Hennessee Hedge Fund Index, which tracks all hedge fund strategies, against 0.81% for the S&P 500), setting the tone for a continuation of the trend in October, the turnaround was quick and stiff. The HHFI released -1.32% in October, in line with the S&P 500 loss of -1.67%. Other indexes,, such as the Dow Jones Industrial Average which lost 1.22% and the NASDAQ Composite Index, off 1.46%, where down too. The results posted by the EDHEC Hedge Fund Index and the S&P Hedge Fund Index were in the red as well, confirming the negative hedge fund trend. "Hedge fund performance was influenced by a number of factors in October, most significantly by a substantial pullback in the global risk appetite as evidenced by widening risk arbitrage spreads and a sizeable retracement in the energy sector," says Justin Dew, Senior Hedge Fund Specialist at Standard & Poor's. "For hedge fund returns to be strong, there needs to be a desire by investors to take on risk, that just isn't happening at the moment." Highly correlated hedge funds – 2005 Performances
That's all the more disappointing given October's higher market volatility which should have helped hedge funds to prop up their returns. "Stock market volatility rose to its highest monthly level since the beginning of the year, but the levels remain low when compared to historical averages", commented EDHEC's analysts. They added: "The returns for the month of October confirm the general trend over the last year, where hedge funds have performed below their historical average." From that perspective, the roaring hedge fund market of the 90s, when the Tremont Hedge Fund Index returned regularly 20%, seems a distant past. But in spite of the poor performances of the recent months and lingering doubts about the true diversification value of hedge funds, the analysis of the Tremont Hedge Fund Index data should give investors some reasons to hope. The data published by Tremont shows that hedge funds are to some extent uncorrelated to other asset classes. Since its inception in 1994, the correlation coefficient of the Tremont index with the S&P 500 stands at 0.48, at 0.41 with the Dow Jones and at 0.53 with the NASDAQ. J.L. |
||||||||||||||||||||||||||||||||||
© Copyright 2008 bfinance. This document is for your personal non-commercial use. Any further copying, reproduction, distribution is strictly prohibited. To obtain permission please contact This e-mail address is being protected from spam bots, you need JavaScript enabled to view it