Managed Futures Lead, Credit Hedge Funds Down Again In November by eVestment

Credit is on pace for its worst year since 2008, large managed futures funds among industry leaders

The hedge fund industry produced an aggregate return of -0.26% in November, bringing YTD returns deeper into negative territory for 2015, -1.21%. The industry’s last annual decline was 2011 when average returns were -4.99% and the S&P rose +2.11%.

Despite overall industry returns being negative in 2015, the distribution of returns across funds is very slightly in favor of positive performance (50.2% positive, 49.8% negative). The average positive return is 7.28% and the average negative return is -9.23%.

Managed Futures

2015 returns are most positively skewed for Origination & Financing strategies. 88% of O&F funds are up for theyear with an average increase of 7.52%, compared to an average decline of -2.76%. The most negatively skewed major segment is distressed, with 85% of products negative for the year with an average decline of -9.32%.

November was the fifth consecutive month in which managed futures returns were directionally different from the month prior. Average gains of 1.64% still leave the universe -1.16% YTD.

Large managed futures funds, those >$1 billion and which have received the vast majority of the universe’s asset inflow in the last year, returned 1.92% in November which brings YTD returns to 3.07%, significantly outperforming smaller, <$1 billion, managed futures managers in 2015 which are -1.1%. Returns from the big-funds group have been more volatile in 2015.

Macro funds were also positive in November, 0.54%, however the group remains negative for 2015 at -1.75%. There is not the same performance distinction between large and small macro managers in 2015 as we see among managed futures funds. Average returns from both >$ 1billion and <$1 billion funds are negative YTD.

Managed Futures

When specific market-focused macro funds are removed, creating a universe of broad, multi-market macro funds, which would be considered the classic global macro strategy, returns for the year are better. This “pure” macro universe returned 1.15% in November and is very slightly positive in 2015, 0.22%.

Credit strategies posted their largest aggregate monthly decline since the financial crisis in November, falling -1.44%. The decline was their fifth in the last six months and the group is -2.64% YTD which, if ending the year down, would be their first decline since 2008.

Directional credit has produced the highest concentration of negative results in the credit space this year. 62% of funds are down for 2015 with average declines of -6.51% compared to average gains of 3.45%.

Managed Futures

Brazil exposure led emerging market hedge fund returns to the downside in November. A decline of -1.16% during the month puts the Brazil universe-29.26% YTD. 2015 returns could well eclipse 2008 as their worst year since eVestment’s data began to track the universe in 1998.

China-focused funds were near flat in November, avoiding the majority of potential losses from the country’s equities. The universe outperformed the MSCI China Index by nearly 350bps in November. With YTD returns of 6.11%, China funds have significantly outperformed long-only index exposure to the country. The MSCI China Index was -6.40% YTD through November.

India-focused fund returns of -0.91% in November pushed the universe negative for 2015, -0.04%. Flat returns in 2015 follow a huge 40.54% gain in 2014.

Products operating out of Hong Kong continue to outperform all other regional and country specific fund domiciles in 2015 ,primarily due to the predominance of China-focused products. The universe has widely outperformed China-domiciled products, which in turn have still outperformed Chinese equities.