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February 14, 2006
Equity Driven Hedge Funds Rally
It is being reported that hedge funds, which trade stocks and those that bet on financial market trends have started the year with strong returns. The average returns have been in the range of about 4 percent, over the gains witnessed on equity markets.
Long/short equity hedge funds, those that buy and short sell usually bet on a lower price for a security in the futures. These funds returned on average 3.93 percent in January compared with 3.16 percent for the MSCI index of world stocks. Hedge funds reportedly did better because they picked the right ones to be in and managed to beat the average stock market rise. Reuters reports:
"Some of that was in currencies, but most of that return was probably in commodities," the analyst said. Equity market neutral strategies, which should not have any exposure to overall market trends returned 2.25 percent and event driven strategies which include trading the shares of firms involved in takeover battles returned 2.21 percent. The worst performers with returns of 1.7 percent were hedge funds which trade the different components of convertible bonds -- equity, debt and volatility -- against each other.
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