As stock markets touched record highs, long/short equity hedge funds rose to welcome one of their best years. Nearly all hedge fund benchmarks show how much better these have done in comparison to other strategies. Eurekahedge L/S Equity index is up 13.35% for the year through November, whereas the broad index recorded a gain of 7.34% in the same period.

asset flows by strategy Hedge Funds

Long/short equity clear winner

Before entering the last month of 2013, assets of long/short funds took in the largest inflows since 2009, according to data from eVestment. The strategy added $10.56 billion in November, which made up for the bulk of the $15.3 billion in inflows into hedge funds during this period. The report said that total assets in long/short equity strategy stood at $605.29 billion at the end of November. Interestingly, while data from Deutsche Bank showed that hedge funds started offering long-only products on demand of their clients, eVestment noticed a distinct fall in allocations to long-only vehicles over the last quarter across the globe,

“Sophisticated investors appear to continue to desire equity market exposure, but want it from more flexible products with the ability to quickly hedge or shift directional exposure.”

Again a similar story is told by Eurekahedge which finds that net inflows to this strategy through the year has surpassed all others. In 2013, long/short equity strategy attracted $78 billion, the largest flows on record for any strategy in history. The strategy also broke the five year record in terms of total assets, which crossed $600 billion in September for the first time since 2008, but are still below the historical average of $756 billion.

Take a look at the big gainers among the small sized hedge funds.

Some of the high gainers in the long/short category are: Passport Special Opportunities Fund +39% YTD, Larry Robbins’ Glenview Capital +39%, Nelson Peltz’ Trian Partners +36%, Lansdowne Developed Markets Fund ($7 billion) +31%, Robert Karr’s $2.5 billion Joho Fund up 30% YTD, Pelham Long/Short Fund ($1.5 billion) +28.7% and Egerton European Equity Fund +25%.

Japan and China lead the way in hedge funds

Among regional hedge fund indices, Japan and China were the clear winners. Returns from Eurekahedge Japan index showed a gain of 24% YTD, whereas the Greater China-focused hedge funds were up 17.8% by the end of November. Data from eVestment also shows a similar story; hedge funds with exposure to Japan are up nearly 29% on average whereas China focused funds gained 13% over the year. The return generated by exposure to China is particularly noticeable as in the same period the Hang Seng index was up only 5.4%, while the Shanghai Composite detracted by 2.1%. In contrast while Japan-focused hedge funds have gained outsized returns, they have still underperformed the country’s stock market – the Nikkei 225 rose 50% over the same period.

regional returns Hedge Funds

All thanks to Abenomics, Japan focused hedge funds are the clear winners. We have pointed out the outsized returns that these funds have gained this year. To name a few examples, Symphony Financial Partners’ SFP Value Realization Fund and Sinfonietta Fund are up 72.6% and 33.75% through the year. Sloane Robinson’s SR Global Fund Japan netted a 54% return through the end of last month, and this is naming just a few of the returns out of hundreds of other such winners.

China focused funds also had a good year. Eurekahedge points out that of the 170 managers investing in China, 110 do it through stocks that trade in international markets rather than in the mainland. Greater China Fund was up 21% through the end of October whereas Chilton China Opportunities Fund was up 16% in the same time period.