Equity Exposure Supported Hedge Funds Returns In May by eVestment

Systematic strategies adrift as major trends slow/shift, LS Equity and Activist outpacing the S&P 500 in 2015

The hedge fund industry produced an aggregate return of 0.35% in May, lifting YTD returns to +3.36%, compared to the S&P 500 which increased +1.29% in May and is +3.24% YTD.

Managed futures funds posted their second consecutive monthly loss in May, falling -0.23%. The strategy’s two-month draw down comes after a five-month string of gains which saw the universe produce cumulative returns of nearly six percent. A strong USD and declining oil prices, the two major and dominant trends likely adding to prior gains, have both since been on hold. The universe is no longer among the leading performers for 2015.

Hedge Funds Returns

Large managed futures strategies, which have been the primary beneficiaries of investor interest returning to the segment in 2015, posted smaller declines than their smaller peers in May. Returns from funds with >$1 billion in AUM were -0.06% during the month, while smaller managers declined -0.14%. While not a large difference, this is a reversal of the breakdown of April’s declines where large managed futures funds produced much larger losses. However, they also produced much higher gains when the currency and commodity price trends were at their strongest.

Global macro hedge funds remain near flat in May

Global macro funds also appeared effected by the pause in currency and commodity trends in May, but were able to remain near flat, +0.05% during the month. Similar to their managed futures peers, large macro funds seemed more apt at altering positions in the shifting environment and were able to outperform smaller macro funds during the month, +0.17% and -0.01%, respectively.

Hedge Funds Returns

Activist funds have had a decent four-month stretch after a difficult start to 2015 and returned +1.12% in May. Since February, the activist hedge fund universe has produced average returns of +6.02% , leaving them +3.38% for the year, slightly outperforming the S&P 500.

The volatility of returns from credit strategies has died down since the turn of the year, but returns remain mixed and losses apparent. The largest losses in May came from funds focused on sovereign debt and European credits. The rapid reversal and rise of German bund, and corporate credit yields across Europe, have likely played a role in credit strategies’ mixed returns. Despite losses, investors have continued to allocate to credit strategies in 2015, showing confidence in the level of opportunities being created around the world.

Hedge Funds Returns

Emerging markets continue to provide a diverse set opportunities for hedge funds. China-focused funds are up nearly 26% YTD, while Brazil funds are down more than 13%. Russia has been extremely volatile, impacted by commodity and geopolitical risks, but funds in the region are up nearly 26% as well.