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Van Global Hedge Fund Index Falls -0.1% Net in January; Hedge Funds Limit Losses amidst Much Worse Month for Stocks.


NASHVILLE, Tenn. -- The Van Global Hedge Fund
Hedge Fund
An aggressively managed fund portfolio taking positions in both safe and speculative opportunities.

Notes:
Most hedge funds are limited to a maximum of 100 investors. And for the most part, hedge funds (unlike regular mutual funds) are unregulated because it is assumed that the people investing in them are very sophisticated and wealthy investors.
 Index lost -0.1% net of fees in January according to an updated report released today by hedge fund consultant Van Hedge Fund Advisors International, LLC (VAN). The Index, one of the hedge fund industry's longest running benchmarks, represents the average reported monthly net return of hedge funds following a broad range of investment strategies.

The Van U.S. Hedge Fund Index, which includes only those funds domiciled in the United States, lost -0.6% net in January. Hedge funds domiciled outside the U.S., however, started the year off better as the Van International Hedge Fund Index posted a 0.4% net gain. (The Van International Hedge Fund Index was previously referred to as the Van Offshore Hedge Fund Index.)

Hedge Funds vs. the Markets

"January was a tough month for the stock market, reminding investors of the importance of a hedged portfolio
Hedged portfolio
A portfolio consisting of a long position in the stock and a long position in the put option on the stock, so as to be riskless and produce a return that equals the risk-free interest rate.
," noted George Van, Chairman of VAN. "Concerns over interest rate hikes and disappointing earnings reports contributed to a -2.4% loss for the S&P 500 last month. Hedge funds, on the other hand, benefited from their short positions and their use of low-correlation investment strategies, keeping losses to a minimum overall. In fact, about 53% of the hedge funds in our Global Index (filename extension) global index - (gid) The filename extension of a Windows 95 "global index" file. .gid files are created by the help browser internal to Windows 95 (also available for other Windows versions) for WinHelp files (hlp), as well as for storing user preferences, such as window position. reported a net gain for January and 88% beat the S&P 500 for the month."

Hedge fund managers faced unfriendly markets outside the U.S. as well. The MSCI World Equity Index dropped -2.3% in January while the Dow Jones Europe Stoxx 50 fell -2.8%. Hedge funds have a history of capital preservation, and even growth, during stock market sell-offs. Since its inception in 1988, the Van Global Hedge Fund Index has posted a positive return every year, including those years when the broad market dropped.

Performance by Strategy Group

Hedge fund performance was split in January, with two of VAN's four broad global strategy groups showing a loss, one posting a gain, and one flat for the month. The Specialty Strategies Group gained 0.8% net as constituent strategies such as Short Selling and Income fared well. The Market Neutral
Market Neutral
A strategy undertaken by a person or fund attempting to profit from the current direction of the market. A person using the strategy will take both long and short positions at the same time.

Notes:
Managers who hold a market neutral position are able to exploit any momentum in the market. Hedge funds commonly take a market neutral position as they are focused on absolute return as opposed to relative return.
 Group was largely unaffected by the January sell-off, posting a flat return. The Long/Short Equity
Long/Short Equity
A hedge fund strategy that involves buying certain stocks long and selling others short. There usually isn't a restriction on the country that the stocks trade in either.

Notes:
This type of hedge fund basically has free reign to buy or sell what it likes. A long/short equity hedge fund is usually considered to be higher risk.
See also: Hedge, Hedge Fund, Long, Short
 Group lost -0.4% net and the Directional Trading
Directional Trading
A general term referring to the strategy used by investors that open positions, either long or short, on the belief that they are able to correctly predict the movement of price in a security.

Notes:
Simple investing. If you think a security is going up, you buy, if you think the security is going down, you sell. This is directional trading, no complicated strategies.
See also: Buy, Long, Option, Security, Sell, Short, Stock
 Group, weighed down by losses among Futures strategy funds, fell -2.1% net.

Performance by Individual Strategy

Five of VAN's thirteen individual hedge fund strategy indices generated profits in January. Unsurprisingly, Short Selling, a strategy that bets on falling stock prices, had the best performance with a 2.4% net gain. Market Neutral Securities Hedging, a strategy that invests as much in long positions as short positions, came in second for the month with a 1.0% net return. Emerging Markets, Income, and Market Neutral Arbitrage rounded out the winners with January net gains of 0.9%, 0.8%, and 0.1%, respectively.

Among the eight strategy indices that fell last month, Futures posted the largest loss, a net return of -3.2%. Aggressive Growth, a long/short equity strategy that focuses on earnings-sensitive growth companies, fell -2.3% net. All other losing Global strategy indices fell from -0.1% net to -0.3% net.

This month, VAN introduced a new strategy index, Event-Driven. This strategy invests in the equity and/or fixed income of companies involved in unusual events such as bankruptcies, mergers, divestitures, and earnings surprises. This new strategy index combines two previous strategy indices, Distressed Securities and Special Situations. Those indices continue to exist as sub-strategy indices in the Event-Driven category.

VAN also calculates four sub-strategy indices within the Market Neutral Arbitrage strategy. Convertible Arbitrage
Convertible Arbitrage
An investing strategy that involves the long position on a convertible security and a short position in its converting common stock.

Notes:
This strategy attempts to exploit profits when there is a pricing error made in the conversion factor of the convertible security.
See also: Arbitrage, Common Stock, Conversion Price, Convertible, Short
, the most widely utilized type of arbitrage among hedge funds, lost -0.8% net in January. Statistical Arbitrage
Statistical Arbitrage
A profit situation arising from pricing inefficiencies between securities. Investors identify the arbitrage situation through mathematical modeling techniques.

Notes:
Statistical arbitrage is not without risk it depends heavily on the ability of market prices to return to a historical or predicted normal.
See also: Arbitrage, Market Arbitrage, Risk, Technical Analysis
, however, gained 1.1% net. Fixed Income Arbitrage and Merger Arbitrage
Merger Arbitrage
A hedge fund strategy with which the stocks of two merging companies are simultaneously bought and sold to create a riskless profit.

Notes:
A merger arbitrageur looks at the risk of the merger deal not closing on time or at all. Because of this slight uncertainty the target company's stock will typically sell at a discount to the price that the combined company will have when the merger is closed.
 also had positive returns, earning 0.9% net and 0.3% net, respectively.

January Index Value

The Van Global Hedge Fund Index declined to a value of 12,373.78 in January. The Index had an initial value of 1,000 at the beginning of 1988. Over its 17 year and 1 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 www.hedgefund.com.

Final January returns for the Van Hedge Fund Indices will be calculated at the end of January, after additional funds have submitted their returns to VAN. Those results will supercede the returns reported herein. Final January returns for the Van Hedge Fund Indices will be posted at www.hedgefund.com when they become available.

As currently calculated, January 2005 returns for the Van Hedge Fund Indices are shown below. (Funds in the Global Index are an aggregate of funds from both the U.S. and International Indices.)
Van Hedge Fund Indices, January 2005
----------------------------------------------------------------------
                                Global         U.S.      International
                             ------------- ------------- -------------
Market Neutral Group             0.0%          -0.1%         0.1%
----------------------------------------------------------------------
  Event-Driven                  -0.1%          -0.1%        -0.1%
----------------------------------------------------------------------
     Distressed Securities       0.4%           0.4%         0.4%
----------------------------------------------------------------------
     Special Situations         -0.3%          -0.3%        -0.4%
----------------------------------------------------------------------
  Market Neutral Arbitrage       0.1%          -0.1%         0.2%
----------------------------------------------------------------------
     Convertible Arbitrage      -0.8%          -0.8%        -0.9%
----------------------------------------------------------------------
     Fixed Income Arbitrage      0.9%           0.6%         1.1%
----------------------------------------------------------------------
     Merger Arbitrage            0.3%           0.3%         0.3%
----------------------------------------------------------------------
     Statistical Arbitrage       1.1%           0.1%         1.6%
----------------------------------------------------------------------
Long/Short Equity Group         -0.4%          -1.4%         0.6%
----------------------------------------------------------------------
  Aggressive Growth             -2.3%          -3.3%        -1.1%
----------------------------------------------------------------------
  Market Neutral
  Securities Hedging             1.0%          -0.4%         1.7%
----------------------------------------------------------------------
  Opportunistic                 -0.3%          -0.9%         0.4%
----------------------------------------------------------------------
  Value                         -0.1%          -1.0%         0.8%
----------------------------------------------------------------------
Directional Trading Group       -2.1%          -1.8%        -2.3%
----------------------------------------------------------------------
  Macro                         -0.1%          -0.7%         0.2%
----------------------------------------------------------------------
  Market Timing                 -0.2%          -0.2%        -0.1%
----------------------------------------------------------------------
  Futures                       -3.2%          -2.4%        -3.8%
----------------------------------------------------------------------
Specialty Strategies Group       0.8%           1.1%         0.5%
----------------------------------------------------------------------
  Emerging Markets               0.9%           1.4%         0.7%
----------------------------------------------------------------------
  Income                         0.8%           0.8%         0.8%
----------------------------------------------------------------------
  Multi-Strategy                -0.1%           0.1%        -0.2%
----------------------------------------------------------------------
  Short Selling                  2.4%           3.0%         1.4%
----------------------------------------------------------------------
Van Hedge Fund Index            -0.1%          -0.6%         0.4%
----------------------------------------------------------------------


Van Hedge Fund Advisors International, LLC ("VAN") is a global hedge fund advisory firm which constructs hedge fund portfolios for international institutions and wealthy investors. VAN bases its work on its pioneering research on hedge funds begun in the early 1990s and by drawing on one of the world's largest hedge fund databases.

The Company's hedge fund index information is based on information received (and not audited or independently verified) from the hedge funds in an affiliate's databases and may not be representative of all hedge funds. Hedge fund returns are net of fees and performance allocations. The timing of the deduction of such fees and performance allocations may affect the reported performance. The January Indices as reported herein were created using a sample of 873 funds (785 excluding Futures funds). Different statistics may be based on different numbers of funds. Averages are not dollar-weighted. Past results are not necessarily indicative of future performance. The Van International Hedge Fund Index was formerly named the Van Offshore Hedge Fund Index. The overall Van Hedge Fund Index results do not include the performance of Futures funds. All historical Index returns and values have been restated to exclude funds of funds. MSCI World Equity Index and Dow Jones Europe Stoxx 50 returns are U.S. dollar denominated.
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Copyright 2005, Gale Group. All rights reserved. Gale Group is a Thomson Corporation Company.

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Publication:Business Wire
Date:Feb 14, 2005
Words:1243
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