Although global stock markets slipped in the second half of October as macro readings pointed to the fragility of the economic recovery, hedge funds advanced overall.
All hedge fund strategies except for managed futures (-1.02%) and long bias (-0.38%) posted positive returns, according to industry data provider Lipper.
The best-performing strategy in October was dedicated short-bias (+1.61%), which represents a sharp turnaround since it was the worst-performing in September and follows seven months in a row of negative returns.
Fixed income arbitrage (+1.52%) and multi-strategies (+0.65%) were October’s runners-up, found Lipper.
It comes after US consumer spending fell in September and the unemployment rate peaked at 9.8% in October – the highest reading since June 1983.
But there were signs that US manufacturing activity could be picking up, while at the same time business activity increased in China, fueling hopes that Asia may lead a global recovery. The HSBC Purchasing Managers’ Index came in at 55.0, with any reading above 50 indicating expansion.
“Credit-focused and relative arbitrage strategies navigated market volatility better than directional and event-driven strategies throughout the month,” noted Aureliano Gentilini, global head of hedge fund research for Lipper.
Stock markets tumbled across the board, falling 1.76% for October as measured by the MSCI World TR Index. US stocks declined for the first time in eight months, with growth and value stocks dropping in unison.
Accordingly, the long bias and long/short equity (+0.04%) strategies, focusing on US equities, were dragged down. Equity managers shorted sectors that declined during the month, including financials, materials and telecoms, noted Lipper.
Eight of the 10 sectors included in the S&P 500 Index were down in October, although there were some bright spots in consumer staples (+1.04%) and energy (+3.15%).
Gaining from spikes in volatility and arbitrage strategies, convertible arbitrage (+0.53%) and volatility arbitrage (+0.63%) finished the month on a positive note.
Despite M&A dollar volume in the US being down 46% from September – the slowest month in 2009 – event-driven managers continued to post positive returns, sustained by the strong performance of the global high-yield market.
Meanwhile, the struggling US dollar continued to sell off against major currencies, boosting demand for dollar-denominated commodities in October. Gold and crude oil rallied 4.59% and 18.14%, respectively.