April 2009

KEY factors

• More dismal economic data characterized April as unemployment rose, sales fell and prices of consumer goods decreased. The unemployment rate increased to 8.90% while retail and manufacturing sales fell by 0.44% and 0.21%, respectively. The CPI Urban Consumer All Items (SA) Index declined by 0.02%.
• Major international events in April included the swine flu outbreak, in response to which the Mexican government declared a state of emergency, and the initiation of new nuclear arms reduction talks between the U.S. and Russia. The IMF also issued a forecast that the global recession would not end until 2010.
• The U.S. economy contracted by 6.10% in Q1 2009 while the U.S. Consumer Price Index recorded its first year-on-year decline since 1955. The auto industry wavered as Chrysler filed for Chapter 11 bankruptcy protection after talks to restructure its debt with creditors broke down.
• The Group of 20 announced a $1 trillion agreement to combat the financial crisis. The United Kingdom’s Retail Price Index recorded deflation for the first time since 1960 and UBS announced its intention to cut 8,700 jobs by 2010.
• The yield curve steepened in April as 3, 6 and 12 month treasury yields decreased and yields for longer term treasuries rose. The 30-year bond yield experienced the largest rise at 50 basis points.

MARKET COMMENTARY

Despite largely negative economic data, U.S. equities experienced strong rallies in April across all market capitalization segments. Small cap stocks led the rally, as evidenced by the Russell 2000 Index (TR) which was up 15.46%, followed by the Russell 1000 Value Index (TR), the Russell 1000 Index (TR) and the Russell 1000 Growth Index (TR) which gained 10.72%, 10.12% and 9.60%, respectively. The S&P 500 Index (TR) was up 9.57%.

Non-U.S. equity markets also performed well in April. Emerging and European markets enjoyed the greatest gains, as the FTSE 250 Price Index (USD) posted a 18.12% gain, the MSCI Emerging Markets Free Index (U.S. Dollar TR) increased 16.64% and the MSCI Europe 15 Index (U.S. Dollar TR) climbed 13.94%. The Nikkei 225 Price Index (JPY) rose 8.86%.

The yield curve steepened in April, in step with the bullish equity markets. The Lehman U.S. Corporate High Yield Index was up 12.11%, its first double digit gain since February 1991. Other fixed-income indices were also positive, but by less than a percent. The Lehman U.S. Aggregate Index was up 48 basis points and the Lehman U.S. Government/Credit Index gained 19 basis points.

In April, the U.S. Dollar gained 15 basis points against the Euro. However, it lost ground to the British pound and the Yen which increased 3.26% and 35 basis points against the dollar, respectively.

Hedge Fund Index Commentary

The CASAM/CISDM Equal Weighted Hedge Fund Index was up 4.84% for the month of April, reflecting gains in all of its component strategies. The top performing strategies were Emerging Markets, Equity Long Short Asia and Convertible Arbitrage which were up 8.64%, 5.82% and 4.64%, respectively.

The CASAM/CISDM Convertible Arbitrage Index was up 4.64% for the month of April. The U.S. treasury yield curve steepened as yields on short term debt declined and yields for bonds with longer maturities increased. Convertible bond issuances were up, providing more trading opportunities for managers.

The CASAM/CISDM Distressed Securities Index was up 2.99% for the month of April. More federal bailout money and reduced fear of defaults both contributed to distressed security price increases. The Lehman U.S. Corporate High Yield Index was up 12.11%.

The CASAM/CISDM Emerging Markets Index was up 8.64% for the month of April, outperforming the other indices. Emerging markets surged as equities in other parts of the world rose. Favorable events included increased commodity values and the G20 pledge of $1 trillion to help alleviate the financial crisis.

The CASAM/CISDM Equity Long/Short Index was up 3.20% for the month of April. Significant gains were made by equity markets across all major regions and market capitalizations. The MSCI World Index (U.S. Dollar TR) rose 11.22% while small cap and large cap stocks rose, as indicated by the Russell 2000 Index (TR) and the Russell 1000 Index (TR), which increased by 15.46% and 10.12%, respectively.

The CASAM/CISDM Equity Long/Short Asia Index was up 5.82% for the month of April. The Nikkei 225 Price Index (JPY) rose 8.86% and the MSCI Far East Index gained 10.46%. Both reflected the strong April performance of Asian equities, which was further boosted by the increased value of the yen.

The CASAM/CISDM Equity Long/Short Europe Index was up 1.94% for the month of April. While positive, the index underperformed several major European equities indices; the MSCI Europe 15 Index (U.S. Dollar TR), the MSCI Daily Net Value Europe Index (U.S. Dollar TR) and the MSCI Daily Net Growth Europe Index (U.S. Dollar TR) were up 13.94%, 19.79% and 8.77%, respectively.

The CASAM/CISDM Equity Market Neutral Index was up 83 basis points for the month of April. Volatility declined as the VIX fell to 38.06% from 44.80% in March, the first time it was under 40% since September. Economic indicators, while better than forecasted, were still not good and uncertainty remains high.

The CASAM/CISDM Event-Driven Multi-Strategy Index was up 2.04% for the month of April. The primary high yield market gained momentum even as all economic indicators remained consistent with a contracting economy and still show very little evidence of an actual upturn in economic activity. April issuance was at $11.1 billion, up from $2.7 billion in March.

The CASAM/CISDM Fixed Income Arbitrage Index was up 3.89% for the month of April. The credit market rally continued to contribute positively to fixed income manager returns. Positive sentiment for April emerged within the credit markets with better than expected economic news, improving financial market conditions, and rising consumer and investor confidence, supporting enhanced risk taking in the markets.

The CASAM/CISDM Global Macro Index was up 6 basis points for the month of April, despite rallies made by both equities and fixed income markets. The Dow Jones Commodity Index was up 72 basis points.

The CASAM/CISDM Merger Arbitrage Index was up 1.07% for the month of April. Deal volume dropped off, going from $138 billion in March to $100 billion. The largest deal to be announced was the $9.28 billion friendly bid of Pepsico Inc. for the Pepsi Bottling Company, a proposal which was recently rejected.

The CASAM/CISDM Mortgage-Backed Securities Index was up 1.39% for the month of April. However, new home construction slowed further as housing starts fell 12.76% from March levels. The Lehman Fixed Rate Mortgage Backed Securities Index was up 28 basis points.

The CASAM/CISDM Sector Index was up 4.01% for the month of April, reflecting the positive performance that most of the S&P 500 Sector indices enjoyed. The financial, consumer discretionary and industrial sector indices performed the best, gaining 22.17%, 18.53% and 17.72%, respectively. The only index to lose value was the S&P 500 Health Care Index, which lost 89 basis points.

The CASAM/CISDM Sector Technology Index was up 1.75% for the month of April, despite strong performance in other indices that track tech equities. The CBOE Technology Index was up 11.77%, the NASDAQ Composite Index rose 12.35% and the S&P 500 Information Technology Index gained 12.04%.

The CASAM/CISDM Fund of Funds Index was up 53 basis points for the month of April. The positive performance of the index reflected the positive results enjoyed by the other hedge fund strategies.

CTA Index Commentary

The April was a harsh month for many CTAs. The CASAM CISDM CTA Equal Weighted Index fell 1.22% for the month of April, reflecting the negative performance experienced by its constituent funds. The two poorest performers were the CASAM CISDM CTA Equal Weighted Physicals Index which lost 1.91% and the CASAM CISDM CTA Equal Weighted Financials Index which fell 1.71%. The only CTA indices to post positive gains were the CASAM CISDM CTA Equal Weighted Equity Index which increased 3.62% and the CASAM CISDM CTA Equal Weighted Discretionary Index which was up 39 basis points. The CASAM CISDM CTA Equal Weighted Currency Index fell 45 basis points while the CASAM CISDM CTA Equal Weighted Systematic Index and the CASAM CISDM CTA Equal Weighted Diversified Index lost 1.50% and 1.64%, respectively. April commodity performance was mixed. The GSCI Metal Index increased 9.01%, the GSCI Spot Index was up 2.04%, and the GSCI Agriculture Index was up 2.42%. However, the GSCI Energy Index was down 2.45%, the GSCI Index TR posted a 92 basis point loss, the GSCI Livestock Index fell 2.88% and the GSCI Precious Metal Index declined 3.80%. Lastly, the Non-Energy Index rose 2.12%.