Tony Griffiths

19/10/2011 Author: Tony Griffiths

Two painful months see managers retreat

September's performance wasn’t as bad as August's, but that’s a little like saying being punched in the face the second time didn’t hurt as much as the first. No doubt about it – the quarter’s been a bruising one.  

Performance relative to general equities was up of course, but few will have found much cheer in a monthly drop of 2.81% in HFR’s weighted composite index, even after August’s -3.01%.

Commodity-focused funds – pushed to dramatic 2010 returns by an end-of-year bull market – have felt the full force of the summer swings. Down 5% in August, HFR’s Energy/basic Materials index fell almost twice that in September. YTD performance is at a gut-wrenching -15.48%.

Unsurprisingly, many equity managers have retreated to defensive positions. Stefan Keller, head of research at Lyxor Asset Management’s Managed Accounts Platform (Map), believes a general feeling of “hope for the best, prepare for the worst” is taking hold.

Lyxor data observed among long/short equity managers on the firm’s Map shows that in the period from 11 June to 20 September: basic materials exposure fell from 9% to less than 6%; industrials from 7% to 4%; financials from almost 8% to 3%; while energy plummeted from almost 9% to a little over 1%.

Into October and, despite continuing fluctuations in the markets, early indications are that defensive sensibilities are beginning to stem the bleeding. The HFRX index is pretty flat month-to-date, up 0.2%.

After a summer of frightening losses, the industry appears to be battening down the hatches. A final quarter of flat returns has rarely looked more appealing.

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