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Scotia Capital Canadian Hedge Fund index returns 2.83% in February (1.18% YTD) on asset weighted basis, 1.29% (1.53% YTD) on equal weighted basis

Friday, March 18, 2011
Opalesque Industry Update - The Scotia Capital Canadian Hedge Fund Performance Index finished February 2011 up 2.83% (1.18% YTD) on an asset weighted basis and up 1.29% (1.53% YTD) on an equal weighted basis. The Index underperformed broader equities in February, but performed in line with global hedge fund indices.

Broader capital markets continued to rally in February. Despite high levels of intra-month volatility from rising tensions over civil unrest spreading throughout the Middle East, developed equities markets proved to be resilient, benefitting partially from more stabilizing macroeconomic data and continued positive corporate earnings results.

At the same time, emerging market equities declined against rising commodity prices and concern over inflation. In the US, the S&P500 posted a gain of 3.20%, led once again by the energy sector. In Canada, the S&P/TSX advanced 4.31%, driven by gains in IT, financials and energy. Commodities continued to rally in February.

Sharp upward pressure particularly on Brent Crude was driven primarily by heightened investor concern over supply as geopolitical unrest began to spread to oil-producing countries, i.e. to Libya and potentially to Saudi Arabia. Effects from rising oil prices spilled over to soft commodities that rose on expectations for higher distribution costs, and to a flight to safety to precious metals, as gold and silver posted strong gains. FX markets were highly volatile in February, and the USD depreciated against major currencies. The CAD saw strong gains versus the USD, driven to a great extent by upward pressure on commodities. Rates markets saw further widening on yields on most developed country government bonds in the first half of the month, then narrowed in the latter part of February with a flight to quality as investors sought to de-risk portfolios against the backdrop of unrest in the Middle East.

Canadian hedge funds performed in line with global hedge fund benchmarks on an equal weighted basis. Many Canadian hedge funds benefitted from the continued rallies in developed market equities and commodities, as well as from opportunities provided by the spike in intra-month volatility. Key performance drivers in February included security selection and timing of portfolio adjustments. Managers are maintaining modest to low risk exposures. Caution, defensive positioning and flexibility remain leitmotifs in an environment of heightened uncertainty.

(press release)

Full performance table: Source

The aim of the Scotia Capital Canadian Hedge Fund Performance Index is to provide a comprehensive overview of the Canadian Hedge Fund universe. To achieve this, index returns are calculated using both an equal weighting and an asset-based weighting of the funds. The index includes both open and closed funds with a minimum AUM of C$15 million and at least a 12 month track record of returns, managed by Canadian domiciled hedge fund managers.


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