After registering impressive gains in February, hedge funds faced a difficult month in March against the backdrop of persistent concerns on the slowing of global growth and the likelihood of a recession in the US. The composite Eurekahedge Hedge Fund Index shed 1.9%1. Volatility across the underlying markets, particularly prior to the Fed’s 75 bps rate cut on 18 March, coupled with a weak state of the credit markets, were among the factors responsible for the month’s losses. The Bear Stearns collapse and its subsequent takeover by JPMorgan (with assistance from the Federal Reserve), along with additional write-downs by major global investment banks, further weighed on the markets.
In terms of regional mandates, North American hedge funds (-1.1%) were the least negative, as decent gains from bets against the US dollar and short positions across equities, among other things, helped offset some of the losses suffered from other allocations during the month. Fixed income and commodity trades also accounted for some gains across the region. Managers, however, suffered losses from long exposure to high-yield debt (as credit spreads widened significantly) and equities.
Europe-focused hedge funds were down 1.6%, as the turmoil in the US economy, the weakness across the European credit markets and inflation-centred concerns across Europe, largely rendered the trading environment unfavourable. Additionally, further strengthening in the euro went some way in acting like a drag on earnings in the region (although some managers did largely benefit from shorting the US dollar against it).
