Introduction

Hedge fund returns were negative during May as sudden trend reversals and an environment of increased volatility effected performance. The Eurekahedge Hedge Fund Index was down 1.24%¹during the month, against the backdrop of a 4.75% increase in the VIX and a 2.52% decline in global equities, as measured by the MSCI AC World Index². Although this was the first negative month for hedge funds since June 2010, the average return of -1.24% can be considered as an outperformance to the underlying markets which were down by more than twice as much.

May was marked by high risk aversion as concerns of the European sovereign debt came to the fore once again and disappointing macroeconomic outlook led to fears of slowing global growth. The month started off with a reversal of the growth trend in April, leading to significant losses for trend following strategies.

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