Early estimates indicate the Credit Suisse/Tremont Hedge Fund Index will finish up 2.35 per cent in July, based on 62 per cent of assets reporting.

Early estimates indicate the Credit Suisse/Tremont Hedge Fund Index will finish up 2.35 per cent in July, based on 62 per cent of assets reporting.

July was a positive month for hedge funds, with convertible arbitrage and credit-oriented managers continuing to lead the broad index's constituent strategies in performance.

Convertible arbitrage has extended its positive performance for seven consecutive months, finishing up 5.44 per cent in July as managers continue to capitalize on tightening credit spreads and attractive valuations. With respect to the sustainability of recent levels of returns, many managers have expressed the view that, while there are still ample opportunities in the space, market momentum has slowed following the 'snapback' in the first half of the year and, now, security selection has become more important.

Equity markets started the month with a bounce back from June's correction following a number of better than expected early corporate earnings reports. Markets were further bolstered by government reports indicating improvements in housing and jobs data, as well as an announcement from the US Federal Reserve upgrading its GDP forecast mid-month. The improved forecast suggested that while GDP could contract 1.0-1.5 per cent in 2009 (a figure lower than originally predicted), an improved growth rate of 2.1-2.3 per cent is expected for 2010.

Overall, equity markets made significant gains for the month with the Dow Jones World Index finishing up 8.6 per cent. A number of long/short equity managers have increased their overall net exposures, and while markets were volatile, most captured gains.

Positive economic data out of China and other emerging markets helped emerging markets managers post positive returns. The strategy is estimated to be up 2.26 per cent in July and, based on manager feedback, investor interest in the space appears to be returning along with performance.

Dedicated short bias managers, on the other hand, continue to struggle as markets rally. The strategy was down an estimated 8.32 per cent in July and is down 18.22 per cent for the year.

The global macro sector registered positive performance with successful tactical trades in credit, currencies, commodities and, to a lesser extent, equities. Overall, the strategy, which has been up for eight out of the last nine months, is estimated to be up 1.78 per cent for July and up 5.23 per cent year to date. In general, trend followers in global macro and managed futures struggled, while high frequency traders did well.