The Globe and Mail

WHAT ARE WE LOOKING FOR?

The laggards among Canadian hedge funds this year.

It's not easy to make money when major stock markets are in the red this year. While hedge funds have more potential to outperform their conventional peers, given that their managers have more tools available, including shorting securities, there are no guarantees.

TODAY'S SEARCH

We checked the year-to-date returns to July 31 for funds in the alternative strategies category. The list excludes those with returns only to June 30 in Globefund.com. We excluded other classes and U.S. dollar versions of the same fund.

SO WHAT DID WE TURN UP?

DeltaOne Energy Fund LP, run by Peter Linder, was the worst performer, with a 47.7-per-cent tumble for the first seven months. And it has also lost 42.4 per cent annually over five years.

The fund has fallen on hard times since it racked up a spectacular one-year return of 178.5 per cent for the year ended Sept. 30, 2005. It is not clear what has gone wrong, especially since energy has been a hot investment area until recently. Unlike mutual funds, hedge funds are not required to disclose their top holdings.

Mr. Linder's DeltaStrategic Energy Fund is off 17.3 per cent as of July 31, but has generated a more respectable 11-per-cent average annual return over five years. Most of the gains came in 2005.

Until this past January, these hedge funds were run by DOCP Management Inc. (formerly DeltaOne Capital Partners Corp.), which was 51 per cent owned by Toronto-based Jovian Capital Corp.

While Jovian said in a press release in 2004 that the DeltaOne acquisition would help build up its alternative asset business, it did not issue another release when it sold its stake back to Mr. Linder earlier this year.

“It wasn't a material transaction,” Jovian spokesman Don Sangster said. Asked if poor performance was the reason for the sale, he replied: “That is a fair assessment.”

He would not comment on the funds' assets. “Given that we are no longer involved with the funds or the manager(s), it would not be appropriate for us to try to provide … historical asset numbers.”

Other funds that have had a tough time include Dynamic Power Emerging Markets, run by veteran manager Rohit Sehgal. It's not surprising the fund is off 33 per cent for the first seven months, given the sharp selloff in emerging markets like the manager's native India.

The out-of-favour value-investing style, meanwhile, has taken its toll on funds like Epic Limited Partnership, which is off 27.1 per cent, and Goodwood Fund-A, down 26.9 per cent, for the first seven months.

Cam MacDonald, chief executive officer of Toronto-based Goodwood Inc., acknowledged that the first seven months for the Goodwood Fund have given investors little to cheer about.

But August is looking brighter as the Goodwood Fund-A, whose top five holdings include Pet Value Canada Inc. and Agilysys Inc., is up about 6 per cent so far in the month alone, he said yesterday.

Stocks of holdings in the hedge fund – it typically holds 30 to 35 securities – have responded favourably to second-quarter financial results, Mr. MacDonald said yesterday.

• Table: View result set