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Hedge Funds Gain in February (March 15, 2005)

Location: Stamford
Author: George Van
Date: Tuesday, March 15, 2005

The Van Global Hedge Fund Index produced a February return of 1.6% net of fees according to hedge fund consultant Van Hedge Fund Advisors International, LLC (VAN). February's gain comes on the heels of a slight loss in January, bringing the year-to-date return for the Index up to 1.5% net. The Index represents the average return of hedge funds tracked by VAN and serves as one of the hedge fund industry's longest running benchmarks of overall performance.

The Van U.S. Hedge Fund Index, which measures the performance of U.S.-domiciled hedge funds, also rose 1.5% net in February, while the Van International Hedge Fund Index, a composite of returns of funds domiciled outside the U.S. , gained 1.6% net. For the year to date, the Van U.S. Hedge Fund Index has gained 0.8% net while the Van International Hedge Fund Index has risen 2.0% net.

Hedge Funds vs. the Markets

Hedge funds delivered broad-based gains in February, with four out of every five funds in the Van Global Hedge Fund Index showing a positive result. Although hedge funds overall didn't keep pace with the stock market last month, they remain ahead of both stocks and bonds for the year to date.

The S&P 500 gained 2.1% in February, a return that only about 29% of the funds in the Van Global Hedge Fund Index were able to surpass. The MSCI World Equity Index and the Dow Jones Europe Stoxx 50 produced February gains of 3.0% and 4.2%, respectively. Bonds lagged hedge funds, though, as the Lehman Brothers Aggregate Bond Index (LBABI) slipped -0.6% for the month. Despite hedge funds' underperformance relative to equities in February, hedge funds have outperformed major US and international benchmarks for the year to date. The Van Global Hedge Fund Index's 1.5% gain over the first two months of the year outranks the S&P 500, the MSCI World Equity Index, the Stoxx 50, and the LBABI, which have posted year-to-date returns of -0.4%, 0.6%, 1.3%, and 0.0%, respectively.

Performance by Strategy Group

Hedge funds' widespread gains translated into positive returns for all four of VAN's global strategy group indices. The Specialty Strategies Group performed best, netting a 2.1% gain for February. The Long/Short Equity Group followed closely with a 1.9% net return while the Directional Trading Group and the Market Neutral Group produced gains of 1.0% net and 0.8% net, respectively. The Specialty Strategies Group also leads for the year to date with its 3.0% net gain. The Directional Trading Group, on the other hand, is the only strategy group in the red so far this year, down -1.1% net.

Performance by Individual Strategy

All but one of VAN's 13 individual global hedge fund strategy indices made gains in February. Emerging Markets turned in another strong month, with its 3.5% net gain placing it atop all 13 strategies. Emerging Markets has been among the best performing hedge fund strategies the past two years and that success has continued in 2005 thanks to opportunities in countries such as Brazil , South Korea , and Turkey . Other strong performers in February include Value and Opportunistic, two long/short equity strategies that gained 2.3% net and 2.2% net, respectively. The lone loser for the month was Short Selling, which lost -0.4% net after being the most profitable strategy in January, when it gained 2.3% net.

For the year to date, Emerging Markets ranks highest with a 5.1% net return, followed by Value, up 2.2% net, and Market Neutral Securities Hedging, up 2.1% net. Futures has performed worst this year, down -2.4% net. Aggressive Growth is the only other strategy to post a net loss for the year to date, down -1.2%.

February was a mixed month for arbitrage managers. Overall, they averaged a small gain, as indicated by the Market Neutral Arbitrage strategy index's 0.3% net return. However, VAN's four arbitrage sub-strategy indices show that certain types of arbitrage hedge funds fared better than others. Fixed Income Arbitrage and Merger Arbitrage both posted another winning month, gaining 1.2% net and 0.4% net, respectively. But Convertible Arbitrage continued to lag, losing -0.5% net in February, while Statistical Arbitrage lost -0.6% net. Fixed Income Arbitrage has performed best of the four so far in 2005, up 1.7% net, while Convertible Arbitrage is the only type of arbitrage to show a year-to-date loss, down ‑1.3% net.

February Index Value

The Van Global Hedge Fund Index rose to a value of 12,571.76 in February. The Index had an initial value of 1,000 at the beginning of 1988. Over its 17 year and 2 month history, the Index has generated a net compound annualized return of 15.9%, compared to a 12.2% compound annualized return for the S&P 500. Past performance of the Van Global Hedge Fund Index may be viewed at Final February returns for the Van Hedge Fund Indices will be calculated at the end of March, after additional funds have submitted their returns to VAN. Those results will supercede the returns reported herein. Final February returns for the Van Hedge Fund Indices will be posted at when they become available.

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