Opalesque Industry Update - The Scotia Capital Canadian Hedge Fund Performance Index finished November 2010 up 3.85% on an asset weighted basis and up 3.05% on an equal
weighted basis. The Index outperformed broader equities and global hedge fund indices on both an asset and equal weighted basis.|
The rally in broader capital markets continued into the first week of November, then reversed as market participants reacted to a confluence of mixed events and increased volatility. At month’s begin, there was positive market reaction to US mid-term elections results, as well as initial enthusiasm over the Fed’s announcement of its QE2. The S&P finished flat, with losses in six of ten sectors. European sovereign debt concerns rose once again to the fore, driving substantial sell-offs in European equity markets that ensued from Ireland’s acceptance of an EU bailout and the possible contagion to Spain and Portugal. Other contributors to an increase in market volatility were the geopolitical tensions between North and South Korea, as well as renewed discussions in China about cooling economic growth with a potential raise in interest rates. In Canada, the S&P/TSX posted gains of 2.18%, buoyed by positive earnings announcements from larger Canadian companies. Positive contribution from the info tech, materials and energy sectors drove Canadian equity market gains. Commodities experienced a great deal of volatility in November and posted flat aggregate monthly results, despite another midmonth record high in gold and a sizeable uptick in oil. In FX, the biggest move was the EUR’s 6.3% decline versus the USD, driven by weakness in Europe. The USD also strengthened by month end versus the JPY and GBP. Rates widened in November on most developed country government bonds, and credit markets declined, particularly in high yield. In November, most Canadian hedge funds benefitted from a fifth straight month of Canadian equity market strength. Selective stock-picking remained a key success factor in an environment of increased volatility, with gains made on both the long and short sides. Gains were also made capturing commodity-related market moves, especially from the oil and gold sectors. Canadian managers have been making cautious incremental increases to long exposures over the recent past, and are also carefully ratcheting up short exposures in anticipation of further market uncertainty. Across strategies, flexibility and nimbleness remain key leitmotifs.