S&P

S&P Releases Methodology, Constituents of New Hedge Fund Index

S&P

Standard & Poor's unveiled the list of forty hedge funds in its upcoming benchmark that will seek to track the largely unregulated industry. The S&P Hedge Fund Index will be divided into three sub-indexes with funds broken down by investment style: arbitrage, event-driven, and directional/tactical. Hedge funds will be further pigeonholed within the sub-indexes as shown below.

Arbitrage
Event-Driven
Directional/Tactical
Equity Market Neutral
Merger Arbitrage
Long/Short Equity
Fixed Income Arbitrage
Distressed
Managed Futures
Convertible Arbitrage
Special Situations
Macro
Source: Standard & Poor's

S&P said its research demonstrated that a portfolio of 30 to 40 hedge funds adequately represents the risk and return profile of the hedge fund asset class. The hedge funds selected for the index underwent rigorous screens and have agreed to provide transparency for daily index calculation.

"We believe the S&P Hedge Fund Index components include representative examples of funds in the respective strategies," said Peter Roffman, an executive at Standard & Poor's, in a statement. "The median assets under management (AUM) of components in the S&P Hedge Fund Index is approximately $530 million and the median track record in the strategy is six years."

The benchmark will be equal-weighted to prevent "hot" hedge funds from dominating the index.

"The hedge fund market is prone to flows of capital chasing recent historical results in different funds and strategies, and a market capitalization-weighted index tends to reflect the impact of these capital flows," said S&P in a white paper offering details on the index methodology and structure. "To minimize frictional costs for investors replicating the index, the weightings of styles in the index are rebalanced to equal weightings annually."

S&P indicated passive instruments tied to the index could be introduced down the road.

"The index is designed to be investable and provide a means to indexed investment in hedge funds through licensed products that replicate it," said Paul Aaronson, executive managing director at Standard & Poor's.

The components of the new hedge fund index are available at http://www.spglobal.com/indexmainhedge_data.html.

ICI Reports August ETF Assets

The combined assets of the 106 exchange-traded funds listed in the U.S. grew to $91.28 billion in August, according to the Investment Company Institute. The ICI is the national association of the investment company industry.

ETF Assets ( in millions of dollars)
 
August 2002
July 2002
December 2001
Total Domestic Equity Index
80,773
78,595
79,977
        Domestic (Broad-based)
72,053
70,330
71,774
        Domestic (Sector/Industry)
8,720
8,265
8,202
Global/International Equity Index
6,897
6,661
3,016
Bond Index
3,613
3,015
-
All
91,283
88,271
82,993
Source: Investment Company Institute[/:Author:]
Value of Shares Issued and Redeemed by All ETFs (millions of dollars)
 
August 2002
July 2002
YTD - 2002
YTD - 2001
Gross Issuance
6,783
9,194
59,852
52,755
Gross Redemptions
3,586
2,045
27,190
30,200
Net Issuance
3,196
7,149
32,662
22,555

Source: Investment Company Institute[/:Author:]