HEDGE FUNDS REMAIN AHEAD OF STOCKS AND MUTUAL FUNDS IN JULY - 08/16/02
Hedge funds sustained moderate losses in July but again succeeded in outperforming stocks and mutual funds. The Average U.S. Hedge Fund fell ?3.0% net of fees while the Average Offshore Hedge Fund lost ?2.3% net. Stocks fared far worse, with major indices hitting levels unseen since 1997 and 1998. The S&P 500 lost ?7.8% in July and the NASDAQ plunged ?9.2%. The Average Equity Mutual Fund fell ?8.9%.
As was the case the month before, hedge funds were affected by the market?s sell-off in July but they were able to avoid much of the damage inflicted on more traditional types of investments. Short sellers continued to shine last month, with their funds earning an average 7.1% net on a global basis. Income strategy funds were winners in July as well, as their portfolios contain few, if any, equities. Overall, 31% of reporting hedge funds were profitable for the month and over 86% beat the S&P 500.
For the second month in a row, the three most successful hedge fund strategies were U.S. Short Selling, Offshore Short Selling, and Offshore Income. For July, those strategies posted average net returns of 7.4%, 6.7%, and 1.2%, respectively. Those strategies also hold the same rankings for the year to date through July with U.S. Short Selling up 27.1% net, Offshore Short Selling up 23.2% net, and Offshore Income up 8.4% net. For the year to date through July, the Average U.S. Hedge Fund and Average Offshore Hedge Fund have returned ?3.0% and ?1.7%, respectively.
Hedge funds have a history of outperformance in down markets, and the past two years have been no exception. Part of hedge funds? superior returns in this bear market can be attributed to skilled managers who can rapidly adjust their portfolios as they see fit. Other important factors include the widespread use of hedging tactics, especially short selling, and, to a lesser extent, exposure to non-equity securities, such as bonds and mortgage-backed securities. Those factors should continue to be important advantages for hedge fund investors as investors ride out the market?s current storm.
Van Hedge Fund Advisors International, Incorporated www.hedgefund.com