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Monoline insurers’ ongoing funding problems and a growing consensus among investors that analysts’ estimates for company earnings are still “significantly optimistic” also contributed to the fall, the London-listed fund of hedge funds said.

Ingrid Neitsch, portfolio adviser at FRM Credit Alpha, said credit specialists expected a shift away from technical issues, such as leveraged-buyout loan backlog, toward fundamental issues as companies meet, exceed or miss their financial targets.

“Under such an environment of increased performance dispersion, the key to delivering strong absolute returns will be credit-picking capabilities,” she said.

FRM Credit Alpha invests in hedge funds that use credit value, long-short credit and credit-arbitrage strategies, focusing on funds that invest in credit securities based on fundamental analysis.

The closed-end company returned 3 per cent in June, bringing its year-to-date return to 7.2 per cent and its estimated return since launch in April 2007 to approximately 22 per cent.