HFRX Daily Indices August 2012 Intra-Month Update

HFRX Indices performance notes

Global financial market volatility moderated through mid-August, as global equities built on July gains which extended into mid-August. Listed equity trading volumes were light following an incident earlier in the month that resulted in a sharp daily increase and significant trading losses for at a specialist market maker firm. US equities posted gains with leadership from Energy & Telecom, while global equities posted gains led by Italy, Spain and France as investors discounted optimism toward current developments regarding the European sovereign debt crisis. US yields rose as the curve steeped, with longer dated maturities coming off historical lows set in July. The US dollar was mixed falling against the Euro while posting gains against the Japanese Yen. Commodities were also mixed as Metals, Natural Gas and Agriculturals (Corn, Wheat and Soybean) posted declines, while Oil increased. Hedge funds extended July gains through mid-August, with the HFRX Global Hedge Fund Index posting a gain of +0.50% led by Equity Hedge and Event Driven strategies; the HFRX Market Directional Index also posted a gain of +1.01% through mid-August.

The HFRX Equity Hedge Index posted a gain of +1.05% through mid-August, with broad based gains concentrated in US small-cap, Emerging Markets and European exposures only partially offset by market hedges exposures; the HFRX Fundamental Value Index gained +1.05% while the HFRX Fundamental Growth Index gained +0.68%. Gains in fundamentally-driven market neutral strategies were partially offset by behavioral and factor-based managers, with the HFRX Market Neutral index posting a modest gain of +0.06%. Sector exposure in Renewable Energy and Healthcare also contributed to positive performance of the strategy.

The HFRX Event Driven Index posted a gain of +0.55% through mid-August, as gains in Equity Special Situations, Credit Arbitrage and Activist strategies were only partially offset by a modest decline in Distressed exposure. Active developments in M&A and new deal announcements, as well as positioning in the technology and energy sectors contributed to performance, with the HFRX ED Special Situations Index gaining +0.79%. The HFRX Merger Arbitrage Index was flat +0.01% for the month, with contributions from the Glencore/Viterra, Duke Energy/Progress Energy and Seagate/LaCie deals, and activity in the Pharmaceutical and Technology sectors. The HFRX Distressed Index declined -0.10% on mixed position performance and despite improving credit markets, with contributions from US exposure offset by exposure to Emerging Markets.

The HFRX Macro CTA Index posted a gain of +0.26% through mid-August, with gains in Discretionary and Currency strategies offset by declines in Systematic Diversified managers. Discretionary managers posted gains on Euro optimism across currency, equity and fixed income positions, while short US fixed income also contributed to gains. Emerging Markets also contributed to gains, with the HFRX Emerging Markets Index gaining +0.69% through mid-month. The HFRX Systematic Diversified CTA Index declined by -0.68% on mixed performance and trend reversals across commodity, fixed income and currency exposures.

The HFRX Relative Value Arbitrage Index posted a gain of +0.06% through mid-August as US yields rose sharply, with positive contributions from Convertible, Corporate Fixed-Income and Energy Infrastructure strategies only partially offset by declines in positions in multi-strategy and Latin America fixed-income. The HFRX MLP Index gained +0.48% on consistent commodity transport demand and mixed commodity performance through mid-August. Gains from credit tightening and interest rate hedges offset rising yields and falling volatility as the HFRX Convertible Arbitrage Index gained +0.41%. The HFRX Fixed Income Credit also offset rising yields to post a gain of +0.36%, while the HFRX Multi-Strategy Index posted a modest decline of -0.06%.


Comments reference performance as published through August 15, 2012.


HFRX Daily Indices Intra-Month Update
August 15, 2012 MTD YTD Index Value
New Indices
HFRX Emerging Markets Composite Index 0.69% 5.71%     1,993.13
HFRX Fixed Income - Credit Index 0.36% 4.40%     1,815.97
HFRX MLP Index 0.48% 1.78%     1,501.41
Global
HFRX Global Hedge Fund Index 0.50% 2.28% 1,134.67
HFRX Equal Weighted Strategies Index 0.33% 1.78% 1,118.34
HFRX Absolute Return Index 0.66% 0.55% 951.74
HFRX Market Directional Index 1.01% 1.62% 1,038.37
Equity Hedge
HFRX Equity Hedge Index 1.05% 2.80% 1,028.50
HFRX EH: Equity Market Neutral Index 0.06% -4.97% 932.57
HFRX EH: Fundamental Growth Index 0.68% 3.05% 1,452.13
HFRX EH: Fundamental Value Index 1.05% 3.92% 960.16
Event Driven
HFRX Event Driven Index 0.55% 3.82% 1,357.14
HFRX ED: Distressed Restructuring Index -0.10% 3.40% 975.80
HFRX ED: Merger Arbitrage Index 0.01% 0.80% 1,505.64
HFRX ED: Special Situations Index 0.79% 1.85% 1,092.10
Macro
HFRX Macro/CTA Index 0.26% -0.09% 1,164.97
HFRX Macro: Systematic Diversified CTA Index -0.68% -2.21% 1,605.27
Relative Value
HFRX Relative Value Arbitrage Index 0.06% 2.22% 1,153.25
HFRX RV: Convertible Arbitrage Index 0.41% 5.62% 691.91
HFRX RV: Multi-Strategy Index -0.06% 1.44% 1,795.74
Regional
HFRX Multi-Region Index -0.03% 3.00% 1,163.01
HFRX North America Index 0.58% 2.66% 1,287.34

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HFRX Indices are designed to be representative of the overall composition of the hedge fund industry.

Hedge Fund Research, Inc. ("HFR") utilizes a UCITSIII compliant methodology to construct the HFRX Hedge Fund Indices. The methodology is based on defined and predetermined rules and objective criteria to select and rebalance components to maximize representation of the Hedge Fund Strategy Universe. Construction of each Index employs state-of-the-art quantitative techniques and qualitative analysis. Multi-level screening, cluster analysis, Monte-Carlo simulations and optimization techniques ensure that each Index is a pure representation of its corresponding hedge fund strategy.

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HFRX index performance profiles reflect respective dates of inception. Index values provided prior to the inception of daily performance, are calculated by means of retroactive and iterative application of the index model. The values for the HFRX EUR, JPY, CHF and GBP FX Indices are calculated by applying to the USD index value the cost of a rolling monthly foreign exchange contract on the relevant currency. All HFRX Indices are re-balanced quarterly. The names for several HFRX Indices were updated in order to better reflect how each index falls within the HFR Hedge Fund Strategy Classification system. (October 1, 2011)


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