Hedge funds returned to profitability in August with the Average U.S. Hedge Fund gaining 0.5% net of fees. The Average Offshore Hedge Fund earned 0.4% net. Unlike June and July, when hedge funds significantly outpaced the faltering stock market, traditional equity investments performed similarly to hedge funds last month. The S&P 500 and Average Equity Mutual Fund gained 0.7% and 0.2%, respectively, while the Dow and NASDAQ posted losses of ?0.6% and ?1.0%.

The storm on Wall Street subsided in August, at least temporarily, providing hedge fund managers calmer trading conditions. Like the market overall, hedge funds exhibited muted performance last month, with small net gains being the norm. Eleven of the fourteen hedge fund strategies that were tracked in the global index were positive for August, with most of them netting less than 1.0%. Earlier this summer, many winning hedge funds were in specialized strategies. In August, the more common long/short equity strategies, including Value and Aggressive Growth, were positive. Overall, just under two-thirds of reporting hedge funds made money for the month.

Hedge funds have proven to be a good place to invest during the bear market that now stands at two-and-a-half years in length. Global hedge funds produced net gains in 2000 and 2001 and the Average U.S. Hedge Fund has lost just ?2.5% net for year-to-date 2002. The S&P 500, on the other hand, is down -19.4% this year through August. Every month this year when the S&P 500 has been down, hedge funds have either posted gains or preserved capital by incurring smaller losses. And both months this year when the S&P 500 has risen, hedge funds have as well.
The best performing hedge fund strategies for August were U.S. Market Neutral Securities Hedging, 1.9% net; Offshore Emerging Markets, 1.8% net; and U.S. Income, 1.6% net. For the year to date through August, the top performing strategies were U.S. Short Selling, Offshore Short Selling and Offshore Income, with net returns of 26.6%, 22.5%, and 8.8%, respectively.

Van Hedge Fund Advisors International, Incorporated