While stocks have rode the bull market through most of this year, investment in credit instruments has not paid equally well. It goes without saying that the Fed’s decision to taper will not be kind to bond yields and to those who invest in them. Compared to the 29% gain on the S&P 500 up to the end of November, the Credit Suisse Leverage Loan Index gained only 5.59% whereas Barclays U.S Corporate High Yield Index has returned 6.87% over the same period. Hedge funds who trade loans and bonds have not done any better: HFRX Fixed Income – Credit Index has gained only 6.39% YTD after a nearly flat November.
Canyon, Contrarian up in November
Despite lackluster returns on these benchmark indices, some credit hedge funds have done exceptionally well so far, especially those who have diversified into distressed corporate debt investments rather than simply holding sovereign bonds. Mitchell Julis and Joshua Friedman’s Canyon Value Realization Fund spun a +0.93% gain in November, according to a monthly letter seen by ValueWalk, bringing up the year-to-date return to 14.66%.
The hedge fund has limited exposure to equities, which has averaged around 8% of assets through the year, implying that Canyon’s returns are from its core strategy. CVRF’s return is even more admirable if one considers that 11% of its holding are held in cash. CVRF manages nearly $6 billion.
Contrarian going head-to-head with Canyon
Jon Bauer’s Contrarian Capital Offshore Fund is also going head-to-head with Canyon Capital’s CVRF. Contrarian was up 0.94% in last month, which has taken up the total return for the year to +14.56%.
Gains and losses
Another high rider in credit hedge funds is John Paulson’s Credit Opportunities Fund. Paulson netted a 3.2% return last month in the credit fund, reports Kelly Bit, pushing up total gains to +20%.
BlueCrest Multi Strategy Credit Fund was up 0.9% in the last month, bringing up year-to-date returns to +7.06%. Steve Kuhn’s Pine River Fixed Income Fund put up a 0.4% return; the fund is now up 9.3% for the year. The MBS guru gained a brilliant 35% last year, making Pine River one of the best-performing hedge funds of 2012. However this year has not been so kind to mortgage focused investments.
David Tepper’s credit long/short Palomino Fund was up 31.5% through the end of October. Tepper has generated +40% gross returns in his equity funds as well.
Finisterre Sovereign Debt Fund declined 1.8% in November, which trimmed the fund’s total return to +5.73%. Finisterre invests in emerging market debt, local rates and forex. London-based Chenavari Toro Capital has gained a whopping 26.5% for the year through the end of October whereas Chenavari Corporate Credit is up 10.7% in the same period. Credit long/short fund Aristeia Internationalis up 14.7% after adding a +0.74% return in November. Redwood Offshore Fund, with $3 billion under management, was up 2% in November, and the fund is now up+16.12% YTD. Sanctum Fixed Income Fund was down 0.42% in November; the fund is now up 2.7% YTD.
Other credit hedge funds which are doing well include BTG Pactual Distressed Mortgage Fund (up 14.5% through November), Josh Birnbaum’s Tilden Park Offshore Fund is up 18.7% through October and Edward Mule’s Silver Point Capital is up 14% YTD through November 15.
All returns are from HSBC Hedge Weekly unless noted otherwise.