As global markets plunged in the first month of new year, the trades that generated the most profit in 2013 came under fresh critique. One of the most noteworthy dips was seen in Japanese markets, where the Nikkei fell nearly 10% in the last month and the yen gained 3% against the U.S dollar. These swings brought losses to Japan-focused hedge funds, which won the crown with outsized gains in 2013.
Emerging markets sold-off on QE taper
Admittedly Japan was not the only market that reversed course. Emerging markets, EU and U.S all shook at the beginning of the year. The S&P 500 plunged in January and then recovered. Hedge funds have now positioned themselves in the net short zone of S&P 500 futures for the first time since September 2012, according to Bloomberg. Looking at hedge fund returns for January, Japan and Emerging Markets took the biggest fall. The Fed’s decision to taper has broken the prolonged rally in EMs with investors rushing to pull out their money.
Emerging markets fund closes shop after losses
Brevan Howard, Europe’s largest hedge fund, made the decision to shut down its $2 billion emerging markets strategy in the wake of recent sell-off. The fund managed by Geraldine Sundstrom was struck by a wave of losses and ended 2013 with a -15% return. Brevan Howard’s fixed income strategy, Emerging Markets Fixed Income Fund, was down 0.24% in January. This high profile hedge fund is not the only one which has closed shop: Avantium Investment Management, founded in 2011 and once a $800 million fund, is also wrapping up business. The fund was focused in emerging markets and suffered a 4.5% loss in 2013.
In case of EMs, credit hedge funds suffered the most. Contrarian Capital’s Emerging Markets Fund fell 6.2% in last month. Asset managers like Ashmore Group and Aberdeen Asset Management suffered heavy outflows in the last quarter of 2013 as EM debt dipped in value.
Emerging equities plunged across the board
According to data from HSBC Hedge Weekly, on average an equity-focused emerging market fund plunged 4% in last month. Adelphi Capital’s Emerging Europe Fund took a loss of 5.3% whereas Armajaro Emerging Markets Fund was down 0.14% in January. A couple of Russian equity hedge funds also found themselves on the losing end, Firebird New Russia Fund was down 7.2% whereas Kaltchuga Russian Equities Fund fell the most with a 10.2% loss in January. SR Global Opportunities and SR Phoenicia Fund lost 3.7% and 3% respectively in January.
Long-only strategies tumbled as well – the $1.6 billion Russian Prosperity Fund lost 3% through January 24 whereas the $50 million Moneda Chile Fund suffered a loss of 11%. BlueCrest Emerging Markets strategy also slipped 0.4%; the fund manages $1.8 billion.
Japanese hedge funds lose after outsized gains in 2013
Turning to Japan, Citi recently released a bullish note on the equity markets and noted that Abenomics will likely bring high earnings growth in the corporate sector. While it may take longer for the emerging markets to rekindle their lost glory, the future looks slightly better for the developed economy of Asia. As for the hedge fund industry, some big gainers of last year reversed course in 2014. Sloane Robinson’s SR Global Fund Japan plunged 9% in January alone after reporting a gain of 62.5% in 2013. Symphony Financial Partners’ SFP Value Realization Fund slipped 3.18% in last month, the fund was the highest gainer with a 82% return in 2013.
John Paul Temperley’s Martin Currie Japan Fund was down 3.7% in January, the hedge fund reported a gain of 28.5% in 2013.
Other who fell in January included Marathon Vertex Japan Fund, down 1.44%, and Henderson Japan ABS Return Fund, which lost 2.5%.