China Focused Hedge Funds Outperform Hang Seng By 16% In 2013

Hedge funds delivered their fourth consecutive month of positive returns as global markets ended the year on a strong note of optimism. The Eurekahedge Hedge Fund Index was up 0.99 during the month. The MSCI World Index gained 1.67% in the month of December.

Key highlights for December 2013:

• Total assets in the hedge fund industry rose to US$2.01 trillion, the highest level on record since June 2008 when global AUM peaked at US$1.95 trillion
• Net asset flows in 2013 stood at US$146.1 billion, with net allocations to North American managers standing at US$73.6 billion in year-to-date
• European fund managers were up 8.79% in 2013 with net asset inflows for the year standing at US$62.4 billion – the highest level on record
• Asia ex-Japan hedge funds outperformed underlying markets and were up 13.47% in 2013 with overall assets under management growing by US19.1 billion during the past year
• Greater China focused hedge funds outperformed the Hang Seng Index by more than 16% in 2013
• Latin America focused managers have outperformed the MSCI EM Latin America Index by more than 9% in 2013
• Distressed debt investing remained the best performing strategy in 2013, up 16.76% for the year, followed by long/short equities which saw gains of 14.87%
• Japanese hedge funds comprehensively outperformed all regional mandates, up 26.62% in 2013
• In 2013, almost 2,750 funds in the Eurekahedge database achieved returns greater than 10% – of which over 1,000 were up more than 20% for the year

Regional Indices

Global market digested the news of the much awaited QE tapering as the Fed reiterated its resolve to keep interest rates low in order to sustain a continued recovery in the US economy.

While North American and European markets edged upwards on the news, emerging market fears over capital outflows resurfaced with the MSCI Emerging Markets Index declining 0.93% during the month. Asian markets were mixed during the month as tightening liquidity in mainland China coupled with a decline in the country’s PMI gauge dampened investor sentiment.

All regional mandates ended the month in positive territory with Eastern Europe & Russia focused hedge fund managers delivering the strongest returns, up 2.50% – outperforming the MSCI Emerging Eastern Europe Index which declined 0.89% during the month. Japanese hedge fund managers delivered yet another month of strong performance with the Eurekahedge Japan Hedge Fund Index up 2.01% and 26.62% for the year as the Nikkei 225 Index climbed up 4.02%, helped by the 2.68% depreciation in the yen relative to the dollar.

North American hedge fund managers were up 1.74% (10.36% for the year) as equity markets remained upbeat with the NASDAQ, S&P500 and DJIA gaining 2.87%, 2.36% and 3.05% respectively during the month. European hedge fund managers were up 1.04%, outperforming the MSCI Europe Index which gained 0.88% during the month.

Asia ex-Japan hedge fund managers were up 0.92%, with Greater China focused hedge fund managers delivering their sixth consecutive month of positive returns, up by 1.39%.

The Eurekahedge Asia ex Japan Hedge Fund Index gained 13.47% for the year, outperforming the MSCI Asia ex Pacific Japan Index which grew 6.54% in 2013. Emerging markets and Latin America focused hedge fund managers were up 0.44% and 0.12% respectively during the month and have outperformed underlying markets amid a difficult trading environment in 2013 as investors shied away from emerging economies.

 

Regional Indices December 2013* 2013 Returns 2012 Returns Eurekahedge North American Hedge Fund Index 1.74 10.36 8.12 Eurekahedge European Hedge Fund Index 1.04 8.79 6.95 Eurekahedge Eastern Europe & Russia Hedge Fund Index 2.50 -1.30 5.64 Eurekahedge Japan Hedge Fund Index 2.01 26.62 5.95 Eurekahedge Emerging Markets Hedge Fund Index 0.44 5.75 11.11 Eurekahedge Asia ex-Japan Hedge Fund Index 0.92 13.47 12.37 Eurekahedge Latin American Hedge Fund Index 0.12 1.57 11.26

Strategy Indices

All hedge fund strategies were in the positive with long/short equities hedge fund managers leading the pack with returns of 1.48% during the month as major equity markets trended upwards in December. Distressed debt hedge fund managers were up 1.34%, outperforming the BoFA Merrill Lynch US High Yield Index which gained 0.55% during the month.

The Eurekahedge Distressed Debt Hedge Fund Index was up an impressive 16.76% in 2013. Relative value hedge fund managers rebounded from their November losses and were up 1.33% during the month, bringing their 2013 returns to 5.70%.

CTA/managed futures hedge funds delivered their third consecutive month of positive returns, gaining 1.04% although the strategy remains in negative territory for the year – down 0.35%. Hedge fund managers utilising systematic trading strategies were up 0.75% while those using discretionary strategies were up 0.90%.

Managers focused on commodities realised gains of 0.87% as the S&P Goldman Sachs Commodity Index climbed 1.93% during the month. Event driven and fixed income strategies gained 1.05% and 0.51% in December while managers utilising macro strategies were marginally positive with returns of 0.05%.