WEST PALM BEACH, FL (www.hedgeco.net) – According to Reuters, U.S. Hedge funds ended first quarter with flat returns, thus marking an extension of the current low-return environment. While this lowreturn period tells little about what returns may be posted for the rest of the year, it is however indicative of the difficult markets for hedge fund investors. Last year the first six monthsfollowed a similar pattern, but hedge funds managed to post profits during the later months of the year, ending 2004 with returns in the range of 8-9 percent for the year.
Justin Dew, a hedge fund analyst at research and index firm Standard & Poor’s said, “This quarter has been difficult.� The S&P Hedge fund index which tracks the performances of the hedge funds included in the index is down about 50 basis points for 2005 year-to-date.
Many hedge fund market analysts and watchers agree that this year seem to be following the same pattern as 2004. Many also agree that there is a high degree of uncertainty prevailing in the credit markets, such uncertainty could be seen from the widening of the credit spreads. There is also the issue dealing with the Federal Reserves� interest rate policies. Many market participants seem to be unsure about how far along the Fed is prepared to cut U.S. interest rates for the remaining three quarters.
The widening of the credit spreads has also resulted in low trade volumes in strategies such as convertible arbitrage or the fixed-income strategies; two of the core strategies used by hedge fund managers. Some blame the bond market and the profit warning recently issued by General Motors Corporation as being responsible for some of the problems. Kevin Campbell, vice president of research at Van Hedge Funds Advisors said, �Everything we have heard about performance in March suggests that a lot of hedge funds lost money this month.�
A recent bond issued by insurer American International Group Inc, actually dropped in value. The average hedge fund lost about 1 percent in March according to Campbell. The build up in hedge fund assets seems not to be affected. Some think that hedge fund investors are now more educated about how hedge funds conduct their businesses. Hedge fund investors are staying put, and no rush for the exits have been seen nor even contemplated.
Paul Oranika
Editor-in-Chief
HedgeCo.Net
Email: Editor@hedgeco.net
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