FOfs up an average 1%

he Eurekahedge Fund of Funds Index returned a robust 1.5 % for the month of October and 6.1% for the year to date. The month's performance was driven by a strong rally in equities on the back of a healthy earnings season in Q3 (the MSCI World Index returned 3.7% for the month) and to a lesser extent by a rally in metals (because of constrained supply conditions).

On the other hand, some of the economic data from the US for Q3 2006 - multi-year lows in the growth in residential housing constructions (-17%) and GDP growth estimates (1.6%) - triggered reversals in global fixed income and currency markets; bond prices rallied and the US dollar weakened on expectations of lower future US interest rates. While the economic slowdown in the US continues to be a cause for concern, the Fed has left the short-term interest rate unchanged for the third consecutive month in a bid to see if the slowing economy slows inflation.

The downward pattern in crude prices has also helped tame inflation. The month's price movements in the energy and currency markets also proved, in the main, profitable for hedge funds and funds of funds.

Crude oil prices continued their fall on high inventory levels, while natural gas prices recovered some of September's losses. In currencies, the US dollar strengthened early in the month against the euro and the Japanese yen, but weak economic data and a status quo in the Fed interest rate meant a reversion into recent ranges by the month's close.

The major geo-political events during the month - North Korea's first nuclear test and the coup in Thailand - had little impact on price movements in the global financial markets. These market movements afforded opportunities to trend followers, value traders and arbitrageurs alike.

As a result, the superior returns of the Eurekahedge Fund of Funds Index were also broad-based as can be seen from the accompanying performance tables, where almost all strategies posted gains upwards of 1% on average. Unsurprisingly, the best-performing strategies for the month were equity long/short (+1.8%), CTAs (+1.7%) and multi-strategy funds (+1.5%).

Rajeev Baddepudi is hedge fund analyst with Eurekahedge in Singapore