hedge fund returns for 2012 by strategy

Hedge funds are gaining some ground as the year comes to a close, although they are still trailing the S&P 500 by several hundred basis points. After suffering at the beginning of the month because of uncertainties surrounding the fiscal cliff and given the situation in the euro zone, which is still gloomy (slide into recession, etc.), risky assets rebounded from mid-November. Investors welcomed the agreement found between Greece and its creditors as well as the statements concerning the fiscal cliff.

The hedge fund industry took advantage of this rather favourable environment and recorded a slightly positive monthly performance: +0.3% for the HFRI index and +0.64% for the DJ Credit Suisse index, according to a report from NATIXIS research released on December 21st. The other key points from the NATIXIS report are summarized below:

Long equity bias strategies boasted the best performances. With +1.1% and +0.7%, respectively, Emerging and Long/Short benefited from their natural exposure to stock markets. Additionally, the out-performance by European and emerging stock markets over the US market in November (1.7% and 0.9%, respectively) must be noted.

hedge fund returns 2003-2012 by strategy

Even though directional strategies were hurt by their traditionally more defensive positioning, they remained close to the top of the ranking. Despite the depreciation of the yen (the JPY/USD lost 3.2%) against a backdrop of expectations of a change of government and a shift to a more aggressive economic policy, CTAs posted a gain of 0.6%, underpinned by the rise in commodity prices (+1.5% for the GSCI). Global Macro posted a performance of +0.7%.

Fixed Income Arbitrage and High Yield strategies (+0.5% and +0.4%, respectively) benefited from of the good performance of US High Yield and sovereigns (+0.7% in total return and +0.6% for government bonds). They were followed closely by Distressed and Event Driven funds which came in close to the bottom of the ranking with a performance of +0.3%. Merger Arbitrage closed the month up 0.7%.

The tensions still surrounding the fiscal cliff as well as the Fed’s announcement that it will resume its net purchases of long-term Treasuries at the expiry of Operation Twist at the end of the year are likely to bolster risky assets in the short term, according to the Report. CTAs, which have been benefiting from this context, have posted a performance of 2.3% since the beginning of the month.