Hedge funds — Key highlights for November 2016:

  • Hedge funds are up 3.53% for the year, posting better performance compared to a modest 1.73% gain over the last year. Asset base for the industry contracted US$10.4 billion in 2016, on the back of steep redemption pressure with net outflows totalling US$28.2 billion for the year.
  • Almost 13% of billion dollar hedge funds posted double-digit gains in 2016, compared to 8% in 2015. Among the sub-billion dollar hedge funds, almost 20% returned double-digit performance compared with 17% in 2015.
  • While billion dollar hedge funds have seen their asset base decline by US$32.3 billion in 2016, their smaller peers, the sub-billion dollar funds have seen their combined AUM grow by US$21.9 billion. In particular, funds in the US$250 to US$500 million AUM bracket have seen investor subscriptions of US$8.8 billion, up from US$5.1 billion the year before.
  • Relative value mandated hedge funds posted the best growth in assets, expanding close to 20% for the year, with underlying relative value volatility hedge funds posting impressive gains of 7.18% in 2016. More details on volatility-focused hedge funds are available here.
  • CTA/managed futures mandated hedge funds have attracted US$11.5 billion in capital this year despite mixed returns among its sub-strategies with commodity focused managers gaining 7.72% for the year, outperforming trend-following and FX-focused managers which declined 1.68% and 2.60% for the year respectively.
  • European hedge funds have fared the worst among regional mandates witnessing their AUM decline by US$21.6 billion in 2016. Liquidations have also outpaced launches in the European hedge fund space consistently for the past 7 quarters with 569 fund shutting down since 2015. More details in the 2016 Overview: Key Trends in European Hedge Funds report.

2016 Overview: Key Trends in European Hedge Funds

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Hedge funds were up 0.41% during the month of November, with 2016 year-to-date returns coming in at 3.53%. Meanwhile, underlying markets as represented by the MSCI AC World Index (Local) gained 2.88% in November with its 2016 year-to-date returns at 4.88%. Roughly 56% of underlying constituent funds for the Eurekahedge Hedge Fund Index were in positive territory this month, with majority of them being long/short equities mandated. North American hedge fund managers posted the best returns among regional peers this month, with gains of 2.28% while among strategic mandates, event driven hedge funds led the tables with gains of 1.85%.

We believe that 2017 will hold more volatility in store for the markets. While the Trump driven reflation theme could be a positive driver for the US economy, it is too early to discount the damage to the US and world economy from his protectionist trade views. Further a strengthening USD will act as another check on the recovery within the US economy and it is very likely that the Fed might be able to slot only one rate hike in 2017 once the euphoria around ‘Trumponomics’ is grounded. The Eurozone will be another source of anxiety for the markets, where a fledgling economic recovery, a possibly (relatively) painless recovery for the UK post-Brexit and the social tensions arising from immigration would embolden and tilt the odds in favour of Euro-sceptics. Across emerging markets, uncertainty arising from Trump’s anti-trade rhetoric coupled with the capital outflows could impact growth. The question remains while Trump moves to America first, will the US Fed follow suit or continue to act as the world’s central bank?

November 2016 and October 2016 returns across regions

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Performance across regional mandates was a mixed bag during the month, with North American managers leading the tables, gaining 2.28%, as manager performance was propped up by the strength of underlying equity markets post-Trump victory with the S&P 500 climbing 3.42% in November. Japanese hedge fund managers also posted positive performance with gains of 1.16% during the month. The USD regained its strength after the initial shock on an unexpected Trump victory as well as a hawkish Fed signalling a chance of a December rate hike. This lead to the weakening of the Yen and a stronger performance of Japanese equity markets with the Nikkei 225 Index gaining 5.07% during the month. On the other hand, Latin America, Asia ex-Japan and European hedge fund managers languished into negative territory this month, down 3.09%, 1.07% and 0.45% respectively.

On a year-to-date basis, Latin American hedge funds led the tables, growing an impressive 17.88% over the past 11 months thanks to the performance of underlying equity markets and the recovery of oil prices. Brazil’s Ibovespa Index gained 42.81% over the same period, allowing managers to profit from their long books throughout the year. North American mandated hedge funds also posted good year-to-date gains, up 7.17%, followed by Asia ex-Japan mandated hedge funds which gained 0.74% over the same period. On the other hand, European and Japanese hedge fund managers fell into negative territory, declining 1.31% and 0.19% respectively year-to-date.

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Mizuho-Eurekahedge Asset Weighted Index

The asset weighted Mizuho-Eurekahedge Index was down 0.82% in November. 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 gained 3.10% in November.

Performance was lacklustre across the board among the suite of Mizuho-Eurekahedge Indices with the Mizuho-Eurekahedge Emerging Markets Index posting the steepest loss, down 3.93% during the month. This is followed by the Mizuho-Eurekahedge Asia Pacific Index which declined 1.61% over the same period. The Mizuho-Eurekahedge Long/Short Equity Index was also down 1.31%, followed bythe Mizuho-Eurekahedge Multi-Strategy Index and the Mizuho-Eurekahedge Top 100 Index whichdeclined 0.64% each.As at 2016 year-to-date, the Mizuho-Eurekahedge Emerging Markets Index led the table, up 11.07% while the Mizuho-Eurekahedge Long/Short Equities Index posted the steepest decline, down 1.84% over the same time period.

Mizuho-Eurekahedge Indices

November 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 November, the CBOE Eurekahedge Short Volatility Hedge Fund Index led the table with gains of 1.08%, followed by the CBOE Eurekahedge Relative Value Volatility Hedge Fund Index which gained a marginal 0.06%.The CBOE Eurekahedge Long Volatility Hedge Fund Index and the CBOE Eurekahedge Tail Risk Hedge Fund Index lost 0.17% and 0.55% respectively. It should be noted 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.

On a year-to-date basis, the CBOE Eurekahedge Relative Value Volatility Hedge Fund Index posted the best gains, up 7.18%. This is followed by the CBOE Eurekahedge Short Volatility Index which gained 4.80% over the same period. On the other hand, the CBOE Eurekahedge Tail Risk Hedge Fund Index posted the steepest decline, down 14.35% followed by the CBOE Eurekahedge Long Volatility Index with a decline of 3.14% over the past 11 months.

CBOE Eurekahedge Volatility Indexes

November 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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Eurekahedge

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