Hedge funds posted their fifth consecutive month of gains this year, up 0.31%1 during the month of May. Meanwhile, underlying markets as represented by the MSCI AC World Index (Local) were up 1.09% over the same period. Equity markets performed well this month with strength led by developed markets. Encouraging macroeconomic data from Europe and Japan buoyed economic recovery sentiments with growth in manufacturing activity adding to much optimism. On the other hand, data coming out of the US was rather lukewarm with weaker than expected inflation figures and jobs data.

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Among regional mandates, Japan mandated hedge funds topped the table for the month, gaining 1.88% followed by Asia ex-Japan and European mandated hedge funds with gains of 0.91% and 0.72% respectively. Emerging markets hedge funds were also up this month gaining 0.17%. On the other hand, Latin American mandated hedge funds posted the steepest decline, down 1.19% followed by their North American counterparts with losses of 0.33%. On a year to-date basis, hedge funds are up 3.25% while underlying markets gained 7.45%. Asia ex-Japan hedge fund managers led the table up 7.89% followed by their emerging markets and Latin American counterparts with gains of 6.99% and 5.91% respectively.

Hedge funds - Below are the key highlights for the month of May 2017:

  • Hedge funds gained 0.31% in May with underlying markets, as represented by the MSCI AC World Index (Local) up 1.09% over the same period. On a year-to-date basis, managers gained 3.25% while underlying markets were up 7.45%.
  • Among developed mandates, Japanese hedge funds were up 1.88%, followed by European peers with gains of 0.72%. On the other hand, North American hedge fund managers posted losses this month, declining 0.33%. On a year-to-date basis, European managers were up 4.23% followed by Japanese and North American managers who posted gains of 3.43% and 2.21% respectively.
  • CTA/managed futures hedge fund managers gained a modest 0.11% in May with underlying FX-focused hedge funds leading much of the strength, gaining 0.32% for the month. On a year-to-date basis, CTA/managed futures hedge fund managers declined 0.36% with commodity-focused hedge funds leading much of the weakness, retracting 2.01%.
  • Emerging market mandates gained 0.17% for the month with strength led by underlying Asia ex-Japan hedge funds. Frontier markets as represented by Eurekahedge Frontier Markets Hedge Fund Index was up 1.33% for the month.
  • The Eurekahedge Long Short Equities Hedge Fund Index was up 0.52%% during the month with strength led by underlying equity long-bias hedge funds which gained 0.70% over the same period. On a year-to-date basis, long/short equities hedge fund managers gained 5.02% with strength led by underlying equity long bias hedge fund managers (+7.40% year-to-date).
  • Asia ex-Japan mandated hedge funds were up 0.91% during the month with strength led by underlying Greater China and India hedge fund managers, who were up 1.99% and 0.19% over the same period respectively. On a year-to-date basis, Greater China and India mandated hedge funds posted impressive gains, up 11.04% and 15.31% respectively.
  • Among volatility-focused hedge funds, short volatility hedge funds topped the table for May, gaining 0.68% while long-volatility hedge funds posted the steepest decline, down 0.38%. On a year-to-date basis, short volatility hedge funds gained 4.90% while tail risk hedge funds were down 6.76%.

Hedge funds

Main Indices

Hedge funds

Regional Indices

Performance was a mixed bag across regional mandates with Asian hedge funds in the lead this month. Japanese hedge fund managers posted the best gains, up 1.88% followed by Asia ex-Japan mandated hedge funds which were up 0.91%. Japanese equity markets ended the month in positive territory this month with the Nikkei 225 Index up 2.36%. Expectations over the US interest rate hike led to a weakening of the Japanese yen while encouraging corporate earnings as well as abated Eurozone uncertainty have also buoyed equity markets. The Hang Seng Index was also up for the month, gaining 3.90%. European hedge fund managers followed with gains of 0.72% with equity market exposure among performance contributors for managers of this mandate. The DAX and CAC Indices ended the month in positive territory with gains of 1.42% and a modest 0.31% respectively. Economic recovery sees to have gained momentum in the Eurozone with a pick-up in manufacturing activity and a somewhat stronger EU bloc post-Macron victory. With the recent elections in other European countries pointing out to a pro-EU stance, the fate of EU as a bloc seems much certain. On the other hand, political uncertainty plaguing the Latin American region led to considerable weakening of the region's equity markets with the Ibovespa Index down 4.12% for the month. Mexico's equity markets also slipped 0.96% over the same period. Latin American hedge fund managers posted the steepest decline, down 1.19% in May. North American hedge fund managers were also down this month, posting losses of 0.33% over the same period.

On a year-to-date basis, Asia ex-Japan hedge fund managers topped the tables and were up 7.89%, followed by emerging markets and Latin American managers with gains of 6.99% and 5.91% respectively. European hedge fund managers were up 4.23% followed by Japan and North American managers with gains of 3.43% and 2.21% respectively.

Hedge funds

Strategy Indices

Performance across strategic mandates were a mixed bag this month with strength led by event driven and long/short equities hedge funds with gains of 0.69% and 0.52% respectively. Well-performing equity markets led to positive performance for most long/short equities hedge fund managers with underlying equity long-bias hedge funds gaining 0.70% for the month. North American equity markets performed strongly this month with the S&P 500 Index and NASDAQ gaining 1.16% and 2.47% respectively. While in the EU, the DAX and the CAC gained 1.42% and 0.31%. In the UK, the June elections uncertainty led to a weakening of the pound, leading to a 4.39% gain in the FTSE. Asian equity markets were also up with the Nikkei 225 Index gaining 2.36%. Distressed debt hedge funds followed with gains of 0.38%, underperforming the BoFA US High Yield Index which gained 0.92%. This is followed by multi-strategy, relative value and fixed income mandated hedge funds which were up 0.33%, 0.29% and 0.16% respectively for the month. Among volatility-focused strategies, long volatility hedge funds posted the steepest decline, down 0.38% while short volatility managers were up 0.68% as volatility levels represented by the VIX Index declined close to 4% in May. Relative value volatility hedge funds were also in positive territory for the month, up 0.21%.

CTA/managed futures mandated hedge funds were also up for the month, gaining a modest 0.11%. Performance was also mixed across the board for underlying CTA sub-strategies with commodity-focused hedge funds posting the steepest decline, down 1.11% for the month followed by trend-following hedge funds with a decline of 0.11% as reversals in commodity markets affected manager performance. The extension of OPEC production cuts led to a recovery of oil markets which otherwise started the month in a sell-off. However, the production cut agreements missed expectations and oil prices trended lower afterwards. In metals, gold trended upwards after the US dollar started to weaken while concerns over nickel demand led the metal on a downtrend for the month. On the FX front, FX-focused hedge fund managers gained 0.32% for the month with managers long on the Euro/USD seeing good gains. Short positions on the US dollar against major developed market currencies also contributed to performance with the USD Index declining 2.05% for the month. The greenback has posted an overall weakness for the first five months of the year, with the USD Index declining 5.07% year-to-date. On the other hand, macro and arbitrage mandated hedge funds languished into negative territory for the month, down 0.19% and 0.06% respectively with the US dollar losing momentum among performance detractors.

On a year-to-date basis, event driven hedge fund managers were up 5.15% followed by long/short equities hedge fund managers which gained 5.02%. Distressed debt managers were up 4.60% followed by multi-strategy managers which were up 4.46%. On the other hand, CTA/managed futures hedge fund managers lost 0.36% with weakness led by underlying commodity-focused and trend-following strategies, declining 2.01% and 0.74% year-to-date respectively.

Looking at the full list of Eurekahedge Strategy Indices in Table 1 below, equity long-bias and event driven managers feature strongly on a 2017 year-to-date basis, with gains of 7.40% and 5.15% respectively while at the other end of the spectrum, tail risk volatility managers posted the steepest year-to-date losses, down 6.76%.

Table 1: Index Flash Strategy Return Map

Hedge funds

Hedge funds

Hedge funds

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1 Based on 40.62% of funds which have reported May 2017 returns as at 13 June 2017

2 Bank of America Merrill Lynch US High Yield Master II Index

Article by Eurekahedge