Hedge fund strategies ended the first month of the year down 0.94 per cent as stocks pulled back amid fears about the global economy and the fiscal health of some Eurozone countries, according to the Lipper Hedge Fund Composite Index.
Convertible arbitrage (-0.12 per cent) and credit focus (+0.27 per cent) led the performance league table for January.
In contrast, other hedge (-2.67 per cent) and managed futures (-2.79 per cent) were the worst performing strategies.
All equity-related strategies ended in negative territory in line with the global stock markets.
Meanwhile, trend followers also posted losses, hammered by a correction in stocks and commodities.
Global stock markets were down 4.11 per cent for January as measured by the MSCI World TR Index.
All three major US stock indices registered their worst monthly performance since February 2009. The S&P 500 TR, the Nasdaq, and the Dow Jones Industrial Average posted -3.60 per cent, -5.37 per cent and -3.46 per cent for the month respectively.
Developed and emerging markets edged down 4.84 per cent and 5.56 per cent, respectively, month on month.
The developed markets were weighed down by double-digit negative returns for Spain (-11.82 per cent), Greece (-10.42 per cent), and Portugal (-10.23 per cent). There were, though, some bright spots in Denmark (+3.13 per cent) and Finland (+2.27 per cent).
Meanwhile, emerging markets posted losses during the month, with BRIC members posting disappointing returns: Brazil -10.98 per cent, China -8.64 per cent, and India -5.31 per cent. The top gainers on the performance league table were Egypt (+8.96 per cent) and Morocco (+4.30 per cent).
Long-bias (-1.70 per cent) and long/short equity (-1.05 per cent) focusing on US companies delivered negative returns as risk-aversion drivers infected a number of asset classes globally.
Volatility as measured by the CBOE VIX climbed from 21.68 for December to 24.62 for January, up 13.56 per cent.
Nine of the ten sectors included in the S&P 500 Index closed the month in negative territory, led by big drops in telecommunication services (-9.32 per cent), materials (-8.66 per cent), and technology (-8.45 per cent) shares. In contrast, healthcare (+0.42 per cent) was the only sector posting a positive return.
All styles registered negative performance, with large-cap stocks beating mid- and small-cap stocks and value outperforming growth stocks at the end of the month.
Managed futures (-2.79 per cent) experienced another bad month in January on unanticipated trend reversal and non-directional volatility.
Commodity prices posted the biggest monthly drop in 13 months on concerns that demand may slow. The Reuters/Jefferies CRB Index slumped 6.28 per cent month on month, coinciding with stock markets’ losses. All sectors except soft commodities (+3.47 per cent) ended in the red.
Industrial metals (-8.92 per cent) was the worst performing sector, bettered somewhat by energy (-8.63 per cent). Zinc (-17.96 per cent) and lead (-16.99 per cent) were the weakest industrial metal components during the month. Gold tumbled 1.25 per cent, while heating oil dropped 9.95 per cent.
Event-driven also saw losses during the month; the global M&A deal value fell 19 per cent to USD184.5bn for January. Healthcare was the leading sector for deal activity, followed by telecommunication services.
The largest deal of the month was Novartis’ bid to buy out minority shareholders in eye-care firm Alcon, a two-part deal valued at USD28.1bn and USD11.2bn, according to Dealogic.
High yield bond markets had a positive start for 2010 with global high-yield bonds rising 1.40 per cent. Both Europe and US high yield markets as measured by the Merrill Lynch HY TR Index generated positive returns, closing at 3.23 per cent and 1.52 per cent, respectively.
The most speculative CCC-rated tier (+2.40 per cent) once again outpaced the higher-rated BB (+1.35 per cent) and B (+1.13 per cent) sectors.
In the FX market the US dollar advanced against major currencies in January as data showing the US economy grew in fourth quarter 2009 at the fastest pace in more than six years boosted views the US was recovering faster than other developed countries. The US dollar appreciated 3.17 per cent against the euro and 2.89 per cent against the South African rand. It depreciated 2.80 per cent against the yen, 0.94 per cent against the sterling, and 1.42 per cent against the Australian dollar.
Source: Hedge Week