Opalesque Industry Update - The Scotia Capital Canadian Hedge Fund Performance Index finished December 2010 up 2.23% (YTD 20.16%) on an asset weighted basis and
up 2.20% (YTD 14.78%) on an equal weighted basis. The Index underperformed broader equities and global hedge fund indices in December,
but closed out 2010 with strong outperformance on the year relative to benchmarks on both an asset and equal weighted basis.|
Broader equities rallied in December during a relatively quiet month with low trading volumes and decreased volatility. While European sovereign debt and inflation concerns remained at the fore, positive US macroeconomic data contributed to a favourable environment for market participants. In the US, the S&P rebounded, as all ten sectors contributed positively. In Canada, the S&P/TSX advanced a further 3.79%, to finish the year up 14.45%. Gains were slightly dampened by the IT and telecom sectors.
Most commodities advanced in December, especially oil and energy-related resources. Gold was up 2.51%, closing the year up nearly 30% at a record high of $1,421. Silver finished 2010 at $30.92, up a noteworthy 83.18% on the year. In FX, the USD depreciated against major currencies, closing December slightly under par to the CAD. Rates widened again in December on most developed country government bonds, while credit markets rallied.
Canadian hedge fund performance was slightly muted this month relative to broader hedge fund benchmarks. In line with global peers, most Canadian hedge funds took advantage of equity markets’ relative strength, with gains generally made on long equity exposures. The decreased volatility made for a challenging environment for tactical trading. Early December noise in bond markets created some difficulty in fixed income trading, but most managers were able to generate gains on these books by month end.
Commodity-related moves were another positive performance driver. Canadian managers continue to maintain relative caution with net exposures.