When hedge funds are having a bad run, mid-sized funds tend to perform comparatively better than their bigger counterparts. However, this was not the case in July, when it seems that every fund lost its footing. According to Eurekahedge, the average hedge fund was down .12% over the last month.
European hedge funds struggle
Hedge fund performance was the worst in the European region, followed by American funds. In contrast, emerging markets and Asian hedge funds were gaining, while the developed world’s industry struggled. The European hedge fund index was down 1.1%, whereas the North American index was down .67% in July. The Russian and Eastern European index did the worst with a loss of 3.28% in the last month. Hedge funds’ leading strategy, equity long / short, had an equally rough time in last month. The Eurkeahedge Equity Long / Short index was down .18% in July.
The retreat in European markets was due to a multitude of factors. The dissolution of Portugal‘s Banco Espirito Santo SA (ELI:BES), escalation of tension between Ukraine and Russia and the worsening of the Gaza-Israel conflict all created a difficult period for global markets. Sanctions on Russia are having a major detrimental effect on Germany, as the country’s stock market ended the month down 4.3%. Russia furnishes a major chunk of Germany’s energy requirements. Even though the PMI data from the Eurozone signaled a recovery, the sell-off in Southern Europe in mid-July caused the European stock market to stumble. At the end, the Eutostoxx index had shed 3.5% in July.
According to investment returns seen by ValueWalk, Verrazanno’s European Focus Fund, with $158 million under management, suffered a loss of .63% in July, leaving the year-to-date return at +4.4%. Verazzano’s European Opportunities Fund, which manages $206 million, was down .55%. After July, the European Opportunities fund is now up only .34% for the year. Verazzano’s long holdings include French automobile manufacturer, Peugeot SA (EPA:UG) (OTCMKTS:PEUGY), ING Groep NV (ADR) (NYSE:ING), Siemens AG (ADR) (OTCMKTS:SIEGY), Koninklijke DSM N.V. (AMS:DSM) (OTCMKTS:RDSMY), Accor SA (EPA:AC) (OTCMKTS:ACRFY) and Vodafone Group Plc (ADR) (NASDAQ:VOD) (LON:VOD).
The RiverCrest European Equity Alpha Fund was down .04% in July, according to a monthly investor update. The long / short fund is sitting on a loss of 5.58% for the year. RiverCrest’s monthly letter noted the weakness in Germany’s market as one of the reasons for the downfall of European stocks. The fund has a short position in The Swatch Group Ltd. (VTX:UHR) and TNT Express NV (AMS:TNTE), which did well last month. Other positions of RiverCrest include longs in Volkswagen AG (ADR) (OTCMKTS:VLKAY), Delta Lloyd NV (AMS:DL), Kingfisher plc (LON:KGF) and Howden Joinery Group Plc (LON:HWDN).
David Yarrow’s Pegasus Fund was the high-flyer of 2013 with a 63% return. However, this year has been tough, as the fund was down .73% through July 25, leaving it down nearly 14% for the year.
Large European funds also declined
Among the bigger funds, the returns were no better. Lansdowne Partners’ Developed Markets Fund was down .24% through July 25, leaving the fund down 4% for the year. The Lansdowne European Equity Fund was down 1.12% in the same period, according to investment returns seen by ValueWalk. Marshall Wace, another top European Fund, retracted in most of its funds. The flagship MW Eureka Fund was down .88% until July 29, and smaller allocations were also not doing well.
Hedge funds with a focus on the U.S equity market also had a tough time. Ricky Sandler’s Eminence Capital was down .5% through July 25. Ivory Capital’s flagship fund had a near to flat return over the same period. Tiger Cub, Lee Ainslie’s Maverick Capital, ended July with a nearly flat return.
The few among European and American hedge funds that did well in July were the Pensato Europa Fund, Standard Pacific Capital and Ascend Partners.