Hedge funds ended May in positive territory with the Eurekahedge Hedge Fund Index up 1.15% as global markets showed signs of stabilisation following a choppy start to the year. On a year-to-date basis, hedge funds are up 1.91% while the MSCI World Index has returned 2.63% in the first five months of 2014.

 

Key takeaways for the month of May 2014:

  •  Global hedge funds crossed the US$2.1 trillion mark in May as fund managers delivered performance-based gains of US$9.29 billion during the month.
  •  Hedge funds recorded their fourth consecutive month of positive asset flows with net capital allocations of almost US$60 billion year-to-date.
  •  Event driven, multi-strategy and long/short equities strategies lead the tables delivering returns of 1.88%, 1.45% and 1.37% respectively.
  •  Emerging markets focused hedge funds delivered strong gains in May, up 2.24% with managers reporting strong gains from their exposure to India.
  •  Japanese hedge funds reported their first month of positive returns for 2014, up 0.80% in May and have outperformed the benchmark Nikkei 225 index by 8.58% year-to-date.
  •  Fund managers using arbitrage strategies delivered their 11th consecutive month of positive returns, up 2.03% on a year-to-date basis.
  •  Eastern Europe and Russia focused managers surpassed all regional mandates in May; gaining 8.37% as de-escalating tensions in the area stabilised regional markets.
  •  Islamic funds were the best performing investment vehicle for the year, driven by strong gains in Arabian markets. Equities in the GCC countries have witnessed a strong rally in 2014, with the Eurekahedge Middle East/Africa Islamic Fund Index gaining 10.18% as at May 2014 year-to-date.

Regional Indices

Global markets trended upwards as the Fed reiterated its dovish stance on keeping long term interest rates low, in order to sustain an ongoing recovery in the US economy after GDP figures showed that the US economy had contracted in Q1 2014. Similar support built up in the Eurozone region where market participants expected the ECB to ease its monetary policy to stave off deflation worries, an expectation that was correctly realised when the ‘Draghi put’ was officially executed earlier this month in the form of negative interest rates on bank deposits. In Asia, China’s encouraging PMI data coupled with an improving trade surplus and a resolve on part of the CCP to liberalise the mainland’s capital markets allayed fears of sharp slowdown in Asia Pacific’s largest economy. While in Japan, improving data on inflation following the sales tax hike, along with an optimistic outlook for the economy by the IMF added hope that an Abenomics driven recovery was still on track. Elsewhere in the world, markets welcomed the prospect of reduced tensions in Ukraine and the election of Modi at the helm of India’s economy as promising signs conducive to growth in the emerging economies.

All regional mandates ended the month in positive territory, with Eastern Europe and Russia focused hedge funds witnessing the strongest gains, up 8.37% as an improving geopolitical outlook in Ukraine calmed market fears. Russia’s pivot to the east, in the shape of US$400 billion gas deal with China was another positive development for regional equity markets with the RTS index gaining 12.12% during the month, much to the delight of long/short equities managers focused on the region. The Eurekahedge Emerging Markets Hedge Fund Index was up a strong 2.24%, with a number of India-focused managers employing systematic trading strategies posting strong gains from their exposure to the CNX-Nifty futures contracts. Managers investing with a Greater China mandate rebounded from their past two consecutive months of losses and were up 0.42%, though they remain in negative territory year-to-date with losses of 3.68%. European hedge funds were up 1.64% as underlying markets trended upwards, despite the election of Euro-sceptics to the European Parliament with the DAX, CAC and FTSE 100 gaining 3.54%, 0.72% and 0.95% respectively. The Eurekahedge Latin America Hedge Fund Index was up 1.27%, with fund managers outperforming underlying markets as the MSCI Latin American Index3 declined 0.73% during the month. Asian hedge fund managers were up 1.33% with funds focused on Asia ex-Japan delivering gains of 1.94%, while those focused on Japan were up 0.80%. North American fund managers, lead the tables in terms of year-to-date returns (up 3.00%), and gained 0.91% during the month with event driven/activist fund managers realising the strongest gains.

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Strategy Indices

Moderate levels of global economic activity coupled with a supportive monetary policy outlook, led to a pro risk environment in May which saw equities and bonds appreciate while volatility levels subsided. All strategic mandates ended May on a positive note, with event driven, multi-strategy and long/short equities funds leading with gains of 1.88%, 1.45% and 1.37% respectively. The Eurekahedge Fixed Income Hedge Fund Index was up 1.21% – markets went long on bonds with the yield on 10-year treasury bills declining 0.19% during the month as investors anticipate long term rates to remain low for an extended period. Managers also reported gains from their exposure to Russian and Indonesian credit. CTA/managed futures hedge funds were up 0.87%; 1.33% year-to-date – with gains in energy and industrial metals offsetting losses suffered by managers in precious metals. Hedge funds deploying macro strategies were up 0.81%, with a number of fund managers reporting gains from their exposure to high yielding currencies in emerging markets which strengthened relative to the US dollar during the month. Distressed debt hedge funds reported their ninth consecutive month of positive returns, up 0.69% with the Eurekahedge Distressed Debt Hedge Fund Index returning 3.75% year-to-date.

Hedge Funds AUM