Introduction

After a leisurely start to the year, hedge funds ended the first quarter on a high note as the composite Eurekahedge Hedge Fund Index advanced 2.53% in March, bringing 2010 year-to-date returns to 2.17%. The index, which has been tracking the performance of hedge funds since December 1999, is now at its highest level on record, with the average hedge fund annualised returns standing at 11.1%, outperforming the broader stock market indices’ (represented by the MSCI World Index) yearly returns of -1.67%.

All regional mandates were in positive territory during March, with Asian managers delivering the best returns. Japanese hedge funds rose 3.14% while Asia ex-Japan managers delivered hefty profits of 3.3%. Managers across Asia benefited from long equity positions, short sovereign debt and pair trades in currencies. European hedge funds also moved upward on the back of rebounding equity markets while long plays in the bond sector were also profitable.

The chart below shows hedge fund returns for February and March 2010 across different geographical mandates:

February and March 2010 Returns

Click on the image for an enlarged preview

In the year-to-date measure, as shown in the chart, Japan-investing hedge funds have delivered the strongest gains so far, up 4.05% as at end-March. While Japanese hedge funds have struggled in the last few years, a resurgent domestic equity market has helped the managers get off to a good start in the year. Foreign investors have been purchasing equities from Japanese firms over the last few weeks and some revisions of the Nikkei 225 range predictions are expected. A healthy global macroeconomic outlook has helped Japanese markets to rebound. Going forward…

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