HFRX Indices September 2013 performance notes

HEDGE FUNDS GAIN IN SEPTEMBER AS FED CONTINUES STIMULUS

Financial markets gained in September as the US Federal Reserve elected not to taper its bond purchases, while into month end, investors prepared for US government shutdown over the budget bill impasse. Global equity markets posted broad-based gains for September, recovering August losses despite declining into month end, with gains across US, European, Asian & Emerging Markets regions. Sector gains were led by Technology, Cyclicals, Energy & Financials, with leadership also from small cap & growth equities. German election results contributed favorably to investor risk tolerance, with European equities led by gains in Germany, Spain, France, Russia & Italy. Asian and Emerging Markets also gained for the month, with leadership from Japan, China, Brazil, Hong Kong, Korea & Thailand. US yields fell as the yield curve steepened on continuation of Fed bond purchases, yields also declined across France, Germany, Spain & the Netherlands. US corporate issuance reached record level in September, highlighted by Verizon, as issuers positioned for higher future borrowing costs. The US dollar posted sharp declines against most currencies including the British Pound and the Euro; the Dollar also declined again the Brazilian Real, Australian Dollar and Korean Won. Commodities posted declines for the month as global tensions over supply concerns related to Syria & Iran eased, with declines led by Oil, Gold, Platinum & Silver. Agricultural commodities were mixed for the month, with sharp declines in Corn & Soybeans offset by gains in Sugar & Wheat. Hedge funds posted gains for the month with the HFRX Global Hedge Fund Index gaining +0.96% while the HFRX Market Directional Index rose +2.23%.

HFRX Event Driven Index posted a gain of +2.10% for September, led by gains in Special Situations and Activist exposures; the Index leads all strategy indices with a YTD gain of 10.87%. The HFRX Special Situations Index gained +2.96% for the month, the strongest gain since January and leading all sub-strategy indices with a YTD gain of +14.2%. The Index had specific contributions from core positioning in Ferro, Chemtura, Dish Network ,Tribune Co., American Airlines, Elan, Dell, Apple, Verizon and Kabel. HFRX Distressed Index gained +0.52% for the period with contributions from various restructurings across Communications, Consumer Cyclical and Non-Cyclical exposures. HFRX Merger Arbitrage Index posted a gain of +0.41%, with contributions from transactions in American Safety/Fairfax, FNB/BCSB Bancorp, Verizon/Vodafone, Koch/Molex, Akorn/Hi-Tech Pharmacal and Thermo Fisher/Life Technologies.

HFRX Equity Hedge Index posted a gain of +1.36% for September, the 14th monthly gain in the last 16 months, with gains distributed across Growth and Value exposures. HFRX Fundamental Growth Index & HFRX Fundamental Value Index gained +2.11% and +1.10%, respectively, with broad based contributions from exposure to large and small cap US, Global Healthcare, European and Emerging Asian equities. HFRX Fundamental Value Index leads all EH sub-strategy indices through September with a YTD gain of +10.7%.

HFRX Relative Value Arbitrage Index posted a gain of +0.42% for September, as the US Fed continued monthly bond purchases and US corporate issuance reached record levels, as issuers positioned for higher future borrowing costs. HFRX Fixed Income Credit Index gained +0.53% with contributions from falling yields, tightening credit and new corporate issuance, such as the Verizon bond offering. HFRX Convertible Arbitrage Index gained +0.46% on credit tightening, falling yields and strong issuance trends; the Index leads RV sub-strategy indices with YTD gain of +9.6%. HFRX MLP Index gained +0.89% for the month of strong demand for yield & energy infrastructure partnerships, leading all indices through September with a YTD of +18.0%.

HFRX Macro Index posted a decline of -0.26% for September, with positive contributions of Currency and Emerging Markets managers offset by mixed performance of quantitative Systematic CTA strategies. The HFRX Emerging Markets Index posted a gain of +0.28% with positive contributions from Emerging Asian and Currency strategies. The HFRX Macro: Systematic Diversified Index declined -0.59 % with mixed contributions from long equities, while short fixed income and long commodity positions detracted from performance.

Comments reference performance figures as posted for September 30, 2013

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