Hedge Funds Witness Investor Redemptions Totaling US$20.7 Billion by Eurekahedge
Key highlights for July 2016:
- Hedge funds witnessed three consecutive months of outflows with investor redemptions totalling US$20.7 billion during this period. Total hedge fund assets grew by US$9.1 billion over the past seven months with the industry’s total assets currently standing at US$2.25 trillion.
- The US$800 billion long/short equity hedge fund space has seen investor redemptions of US$18.4 billion over the 3 months ending July 2016. The Eurekahedge Long/Short Equity Hedge Fund Index is up 0.89% for the year – the worst performer among all strategic mandates.
- Total AUM in the US$532.0 billion European hedge fund industry has declined by US$9.0 billion over the last three months as investors redeemed US$10.9 billion from the industry following lacklustre returns and uncertainty in a post Brexit environment.
- Roughly 80% of hedge funds posted positive returns over the 3 year annualised period, with close to a quarter of these managers posting double digit gains over this period.
- Among developed market mandates, North American hedge fund managers lead the tables, up 3.87% year-to-date whereas Japanese and European managers fell into negative territory, down 4.21% and 1.82% respectively. The US$1.5 trillion North American hedge funds sector grew by US$12.3 billion over the past seven months, with performance-based gains accounting for US$6.5 billion of this growth.
- Asia ex-Japan managers were up 0.48% year-to-date with the performance of underlying Greater China hedge funds down 4.70% over the same period. Nonetheless, Greater China hedge fund managers beat the CSI 300 Index which was down 14.13% over the past seven months.
- CTA/managed futures hedge fund strategies lead in terms of investor allocations for the year, recording US$10.5 billion in inflows for 2016. The Eurekahedge CTA/Managed Futures Hedge Fund Index is up 4.22% for the year with its sub-group of trend following strategies gaining 5.38%.
- Relative value hedge funds led the tables across strategic mandates in July, up 2.51%. On a year-to-date basis, relative value hedge funds were up 4.88% with AUM growing by US$5.1 billion over the past seven months to reach US$61.6 billion as of July 2016.
2016 Key Trends in Global Hedge Funds
Hedge funds gained for the fifth consecutive month in July, up 1.52% while underlying markets, as represented by the MSCI AC World Index (Local) gained 4.18%. Roughly 73% of the underlying constituent hedge funds for the Eurekahedge Hedge Fund Index were in positive territory this month thanks to a broad-based rally in global equity markets and an improving investor risk appetite post-Brexit. Markets were a little perturbed by a series of central bank meetings. Bund yield barely moved after the ECB meeting left current measures unchanged, signalling that investors are still anticipating another round of ECB stimulus in the coming months. Over in Japan, Abe’s latest stimulus package and the Bank of Japan’s easing expansion lead to some USD/JPY action towards the final week of July but Yen strength had little impact on the Japanese stock markets which ended the month in positive territory. While the Fed left rates unchanged at the latest July meeting, incoming macro data could put the central bank on track for its next rate hike.
Across regional mandates, Latin American managers topped the table, gaining 4.44% while relative value managers were in the lead for strategic mandates, up 2.51% during the month. Exposure into equities, precious metals and energy contributed to hedge fund performance during July. On a year-to-date basis, Latin America once again led the table, up 15.82% while distressed debt hedge funds led performance among strategic mandates, gaining 6.56% over the same period.
The Eurekahedge Hedge Fund Index gained 2.53% over the same period, with over half of managers posting positive year-to-date returns. Roughly 12% of hedge fund managers have posted year-to-date returns in excess of 10% over the past seven months, down from 16% of funds over the same period last year. One-third of these funds posting double digit gains are long/short equity mandated while another quarter of them are CTA/managed futures mandated hedge funds.
July 2016 and June 2016 returns across regions
All regional mandates were up in July with Latin American managers a clear lead among regional peers, gaining 4.44%, followed by Asia ex-Japan managers who were up 2.79% over the same period. North American managers grew 1.67%, followed by European and Japanese managers reporting gains of 1.39% and 1.05% respectively. On a year-to-date basis, Latin American managers lead the tables again, up 15.82% followed by North American and Asia ex-Japan managers with 3.87% and 0.48% respective gains. Lacklustre year-to-date performance for Japanese and European hedge funds saw Japanese managers posting the steepest loss of 4.21% while European managers declined 1.82%.
2016 year-to-date returns across regions
Mizuho-Eurekahedge Asset Weighted Index
The asset weighted Mizuho-Eurekahedge Index was up in July, gaining 1.03%. It should also be noted that the Mizuho-Eurekahedge Index is US dollar denominated, and during months of strong US dollar gains, the index results include the currency conversion loss for funds that are denominated in other currencies. The US Dollar Index declined 0.64% in July.
Performance was positive across the board among the suite of Mizuho-Eurekahedge Indices with the Mizuho-Eurekahedge Asia Pacific Index posting the best gains, up 2.76% during the month. This is followed by the Mizuho-Eurekahedge Emerging Markets Index which gained 2.27% over the same period. The Mizuho-Eurekahedge Long Short Equities Index was up 1.87% followed by the Mizuho-Eurekahedge Top 100 Index which gained 0.78% over the same period. The Mizuho-Eurekahedge Multi-Strategy Index also reported gains of 0.52% in July. As at 2016 year-to-date, the Mizuho-Eurekahedge Emerging Markets Index led the tables, up 13.40% while the Mizuho-Eurekahedge Multi-Strategy Index posted the steepest decline of 0.71% over the same time period.
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Mizuho-Eurekahedge Indices July 2016 returns
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Mizuho-Eurekahedge Indices 2016 year-to-date returns
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CBOE Eurekahedge Volatility Indexes
The CBOE Eurekahedge Volatility Indexes comprise four equally-weighted volatility indices – long volatility, short volatility, relative value and tail risk. The CBOE Eurekahedge Long Volatility Index is designed to track the performance of underlying hedge fund managers who take a net long view on implied volatility with a goal of positive absolute return. In contrast, the CBOE Eurekahedge Short Volatility Index tracks the performance of underlying hedge fund managers who take a net short view on implied volatility with a goal of positive absolute return. This strategy often involves the selling of options to take advantage of the discrepancies in current implied volatility versus expectations of subsequent implied or realised volatility. The CBOE Eurekahedge Relative Value Volatility Index on the other hand measures the performance of underlying hedge fund managers that trade relative value or opportunistic volatility strategies. Managers utilising this strategy can pursue long, short or neutral views on volatility with a goal of positive absolute return. Meanwhile, the CBOE Eurekahedge Tail Risk Index tracks the performance of underlying hedge fund managers that specifically seek to achieve capital appreciation during periods of extreme market stress.
During the month of July, the CBOE Eurekahedge Relative Value Hedge Fund Volatility Hedge Fund Index led the tables with gains of 0.65%, followed by the CBOE Eurekahedge Short Volatility Hedge Fund Index which was up 0.45% as volatility levels, represented by the CBOE VIX declined towards the end of the month. The VIX fell 24.06% during the month. On the flip side, the CBOE Eurekahedge Tail Risk Volatility Hedge Fund Index fell sharply during the month, down 2.71%, followed by the CBOE Eurekahedge Long Volatility Hedge Fund Index which fell 0.74% over the same period. The performance of tail risk hedge funds fell as volatility levels gradually subsided after markets recovered from the Brexit shock. It should be observed though that tail risk and long volatility strategies are designed to deliver outsized returns during periods of extreme market volatility thereby providing overall portfolio level protection, hence losses can be expected during normal market conditions.
The CBOE Eurekahedge Relative Value Hedge Fund Volatility Index was the only strategy to post year-to-date gains, up 5.24%. On the other hand, the CBOE Eurekahedge Tail Risk Hedge Fund Index posted the steepest decline, down 9.81% followed by the CBOE Eurekahedge Long Volatility Index and the CBOE Short Volatility Index which lost 1.08% and 0.51% respectively.
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CBOE Eurekahedge Volatility Indexes July 2016 returns
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CBOE Eurekahedge Volatility Indexes 2016 year-to-date returns
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Summary monthly asset flow data since January 2012
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