Opalesque Industry Update - Hedge funds continued to struggle in June as volatile market movements created a difficult trading environment. The Greek debt story and unexpected policy interventions such as the release of strategic oil reserves added uncertainty and led to a general decrease in gross exposures across the industry.|
Managed futures losses generally came after emerging trends reversed sharply, although managers with large fixed income allocation saw smaller losses as bond markets continued to trend upwards. Relative value and event driven styles were also held back by falls in both equity and credit markets.
The market environment was challenging again as on-going European sovereign debt issues, combined with ‘soft’ US economic data, led to a pullback in risk appetite. Sharp falls were seen in equities before a solid rebound, but overall the MSCI World Index ended down -1.6%.
The US dollar, which rose for the majority of the month, pulled back sharply in the last week to end down -0.5%, while the euro reversed its recent decline and rose 1.3% on the back of expectations of an ECB rate rise in July and some optimism that policymakers would find a solution to Greek debt woes. Commodities experienced another negative month with crude, precious metals, and some agricultural products falling on both fundamental and technical signals.
Managed futures and global macro
Long term trend followers were also hurt by commodity exposure as crude oil price movements hurt the longs and natural gas prices pulled back sharply after moderate temperatures in the US reduced the outlook for demand. On the plus side, short-term volatility trading provided some opportunities.
Global macro strategies also struggled with the HFRI Macro Index down -1.7%. Long energy and agricultural positions were again hurt – particularly after the International Energy Agency announced it had released strategic oil reserves for only the third time since 1975 to offset supply constraints in Libya. And a huge sell off in agricultural products led corn down -15.9% and wheat -25.2%, and overall the S&P GSCI Index fell -5.3%.
Relative value and event driven
Event-driven strategies continued to post negative returns with the HFRI Event Driven Index falling -1.1% on the back of poor performance in both equity and credit markets. Distressed managers tended to suffer across all asset classes, but merger arbitrage specialists outperformed within the style (HFRI Merger Arbitrage Index down -1.3%), although some may have been hurt in July with the high profile breakdown of News Corp’s bid for BskyB.
Equity hedged strategies
The above is excerpted from the Man Group's Man on the Month report for June 2011