Hedge funds struggle as stock market drops

Arrow_downAll but two of the 13 hedge fund strategies monitored by the Edhec-Risk Institute lost money in June, as the stock market lost value for a second month running.

The figures may be disappointing to those investors who look to hedge funds to provide returns even when the market is down.

It is telling that the most profitable strategy was short-selling, which returned nearly 3% in the month, helping to reverse a period of poor performance that has left the strategy down 3.3% since the beginning of the year.

Fixed income arbitrage returned a slight positive result of 0.05%, but the worst-performing strategy was CTA (commodity trading adviser) Global, which suffered from a drop in the commodities market.

It was not all bad news, however. Several of the strategies outperformed the S&P 500 index, which lost 1.67%. The equity market neutral strategy lived up to its name by staying stable, at -0.02%, despite the poor stock performance.

The long/short equity strategy also beat the S&P 500. However, it still lost 1.18%, suggesting the strategy was overweight in poor-performing long positions and had not made effective use of its ability to short loss-making stocks.

©2011 funds europe