December 2009

KEY factors

• The Consumer All Items Index Increased by 0.13% in December and the U.S. unemployment rate was level at 10%. New housing sales and retail sales fell by 7.57% and 24 basis points, respectively. Manufacturing sales were unchanged.
• The latest summit for the Kyoto protocol was rocky as treaty negotiations at the Copenhagen Climate Change conference were suspended when the G77 (a bloc of Asian and African states) walked out mid-conference. In the U.S., the CIA cancelled its contracts with private security provider Xe Services (formerly Blackwater Worldwide) and the army announced that it planned to send 30,000 more troops to Afghanistan before beginning its withdrawal.
• The previous year’s bank failures materialized in troubles for the FDIC which reported an $8.2 billion deficit and GM announced that it would shut down its Saab brand due to financial difficulty.
• Deal making was prominent in December as BlackRock completed its acquisition of Barclays’ investment unit, the $1.7 trillion-in-assets Barclays Global Investors. In addition, Royal Dutch Shell won the first oil field development rights contract (for the Majnoon fields) in a joint partnership with Petronas since the 2003 invasion of Iraq. The fields are expected to generate $900 million annually.
• The U.S. yield curve rose sharply in December. The 7 year treasury notes (whose yield rose by 70 basis points) experienced the greatest percentage decline in price. The 3 month Treasury bill’s yield increased the least, remaining flat at 58 basis points.

MARKET COMMENTARY

U.S. equity markets ended the year with a gain, as evidenced by the S&P 500 (TR) Index which increased by 1.93%. U.S. small cap stocks outperformed the rest, with the Russell 2000 Index (TR) netting 8.05%. Growth stocks performed second-best, given the 3.09% gain made by the Russell 1000 Growth Index (TR).

Most major non-U.S. equity markets also increased in December. The MSCI World Index (U.S. Dollar TR) rose by 1.80%, but the strongest performance occurred in Japan where the Nikkei 225 Price Index (JPY) rallied by 12.85%. Other regional indices also faired well, led by the FTSE 250 Price Index (USD) which netted 4.36%. The Emerging Markets Free Index (U.S. Dollar TR) increased 3.95%.

Fixed income indices predominantly fell in December, with a sharp spike in the U.S. yield curve and higher corporate debt prices. The Barclays U.S. Aggregate Index fell by 1.56%, the Barclays U.S. Government/Credit Index fell by 1.77% while the Barclays U.S. Corporate High Yield Index rose by 3.28%.

The U.S. Dollar gained in December, rising against the Japanese Yen, the Euro and the British Pound by 7.64%, 4.78% and 1.67%, respectively.

Hedge Fund Index Commentary

The CASAM/CISDM Equal Weighted Hedge Fund Index was up 1.98% for the month of December. Only the Global Macro Index posted negative performance, down 54 basis points. The Sector Technology and Equity Long/Short Asia Indices performed best, up 2.79% and 2.61%, respectively.

The CASAM/CISDM Convertible Arbitrage Index was up 2.15% for the month. Though corporate debt yield spreads widened, the strategy’s practitioners faired well as evidenced by the Merrill Lynch Convertible Bonds – All Qualities Index which was up 4.08%.

The CASAM/CISDM Distressed Securities Index was up 2.50% for the month of December. The ratio of corporate credit rating upgrades/ downgrades rose to .96 (the highest in 2009) according to Bloomberg and the Barclays U.S. Corporate High Yield Index was up 3.28%.

The CASAM/CISDM Emerging Markets Index was up 2.45% for the month, continuing its 10 month run of positive performance. The index ended the year up 46.30%, leading the other strategy indices. The MCSI Emerging Market Index rose by 3.95% and the Dow Jones Commodities Index was up 1.97%.

The CASAM/CISDM Equity Long/Short Index was up 1.84% for the month of December. The performance of the index reflected gains of major U.S. equity indices, like the Russell 1000 (TR) and Russell 2000 (TR), which increased 2.43% and 8.05%, respectively.

The CASAM/CISDM Equity Long/Short Asia Index faired well in December up 2.61%. Japanese equities performed strongly, as indicated by the Nikkei 225 Price Index (JPY) which rose by 12.85%. The MSCI Far East Index also rose slightly with 1.08%.

The CASAM/CISDM Equity Long/Short Europe Index was up 1.11% for the month of December following positive performance of European indices. The MSCI Europe 15 Index (U.S. Dollar TR) and the FTSE 250 price Index (USD) were up 1.51% and 4.36%, respectively.

The CASAM/CISDM Equity Market Neutral Index was up 82 basis points for the month of December. Domestic equity market liquidity increased, as indicated by the trading volume (which rose over 15%) of the SPX Index. The VIX Intra-month Index average dropped to 21.24%.

The CASAM/CISDM Event-Driven Multi-Strategy Index ended the month up 2.14%. The improvement in credit ratings and increase in deal volume for the month may have contributed to the positive performance posted by event driven focused investment managers.

The CASAM/CISDM Fixed Income Arbitrage Index was up 1.87% for the month of December. Major fixed income indices had mixed performance for the month. The Barclays U.S. Corporate High Yield Index rose by 3.28% while the Barclays U.S. Government/ Credit Index fell by 1.77%.

The CASAM/CISDM Global Macro Index was down 54 basis points for the month of December. The Dow Jones Commodities Index was up 1.97% and sector oriented GSCI Indices were up for the month.

The CASAM/CISDM Merger Arbitrage Index was up 1.08% for the month of December. Merger and acquisition deal volume increased to $193 billion according to Bloomberg, and the largest deal announced was Exxon Mobil’s $41.4 billion acquisition of XTO Energy Inc.

The CASAM/CISDM Mortgage-Backed Securities Index was up 2.50% for the month of December consistent with less negative real estate statistics. The Bloomberg Mortgage Delinquency Rate was 5.51% (dropping from 11.59% in November) and the 30-year fixed mortgage rate was 5.11% (dropping from its highs of over 6% during mid-2008).

The CASAM/CISDM Sector Index was up 2.79% for the month of December, reflective of the gains made in most of the S&P 500 sector indices. The highest performing indices were those covering utilities, information technology, and telecom rising 5.21%, 5.59%, and 4.58% respectively.

The CASAM/CISDM Sector Technology Index was up 2.21% for the month of December, trailing the NASDAQ Composite Index and the CBOE Technology Index which were up 5.81% and 5.26%, respectively.

The CASAM/CISDM Fund of Funds Index was up 91 basis points for the month of December, reflecting the overall positive performance of hedge fund indices during the month.

CTA Index Commentary

The The CASAM CISDM CTA Equal Weighted Index was down 2.11% for the month of December, in contrast to its 4.53% gain made in the previous month. The other CTA indices that performed negatively were the CASAM CISDM Equal Weighted Financial Index (down 3.39%), the CASAM CISDM Equal Weighted Diversified Index (down 2.95%), the CASAM CISDM Equal Weighted Systematic Index (down 2.92%), the CASAM CISDM Equal Weighted Physical Index (down 1.94%), and the CASAM CISDM Equal Weighted Currency Index (down 46 basis points). The only CTA indices that performed positively were the CASAM CISDM Equal Weighted Equity Index (up 3.03%) and the CASAM CISDM Equal Weighted Discretionary Index (up 1.65%). Commodities performance was predominantly positive in December. Six of the eight GSCI indices were up in December. The GSCI Metal Index was the top performer gaining 7.35% while the GSCI Precious Metal Index lost 7.47%. There were slight movements among GSCI Agriculture Index (up 29 basis points), GSCI Energy Index (up 70 basis points) and the GSCI Livestock Index (down 5 basis points). The GSCI Non-energy Index was up 1.19%, GSCI Spot Index was up 2.35% and the GSCI TR Index was up by 87 basis points.