Hedge Funds: Non-Directional & Niche Strategies Leading The Way In Q2 by eVestment

Industry outperforms major indices in June/Q2 despite macro & managed futures fund declines.

The hedge fund industry produced an aggregate return of -0.93% in June, just over 100 basis points ahead of the S&P 500 which fell -1.94% during the month.

The industry’s Q2 2015 return of +0.65% also outperformed the S&P (+0.28%) and a balanced index of 60% MSCI World/40% Citi WGBI (-0.42%).

June proved another difficult month for managed futures hedge funds. The strategy declined an additional -2.64% during the month, the universe’s third consecutive monthly decline. Losses dropped the average Q2 return to -3.99% and dragged returns for the first six months of 2015 into negative territory, -1.11%.

Large managed futures funds, those with greater than USD 1 billion in AUM, experienced elevated losses in June, declining an average of -4.79%. The decline surpasses the magnitude of early 2015 gains and pushed large managed futures funds’ average returns for Q2 to a large decline of -7.24%. Large gains in January 2015 have helped limit YTD losses to -0.95%.

Hedge Funds

Macro hedge funds decline -1.42% in Q2

Macro hedge funds also had a disappointing June, declining -1.42%, which brought Q2 returns to -1.80% and YTD returns to -0.85%. Large macro hedge funds have not experienced the same types of declines large managed futures products faced in Q2, declining only -1.62% during the quarter.

Activist strategy returns have experienced volatility amid equity market swings and ended Q2 with a -0.99% loss in June. The decline was not enough to bring average activist hedge fund performance negative in either Q2 or H1 2015, +0.96% and +2.32%, respectively.

Despite a decline of -0.48% in June, the volatility of returns from credit strategies was well below the last twelve month average for a second consecutive month. Funds designed to benefit from rising rate environments led the universe in June and in Q2. With rapidly shifting interest rates in major markets and pockets of special situations from both corporate sectors and governments, credit markets have provided opportunities for differentiation across funds.

Hedge Funds

Commodity funds returned +1.45% in Q2

Commodity strategies rebounded in June led by large positive movements in agriculture and natural gas prices. Commodity funds returned +1.45% in June. Gains were enough to lift Q2 into positive territory, +1.42%, but H1 2015 returns remain down for the year, -0.98%.

Origination and financing strategies have produced strong results in 2015 in the face of difficult credit markets. The strategy, which includes trade finance and asset based lending, returned an average of +0.74% in June bringing H1 results to +3.85%, ahead of all other primary strategies in 2015.

Despite nearly 5% declines from funds focused on both China and Russia in June, emerging market hedge funds were a highlight for the industry in Q2 and H1 with returns of +3.72% and +4.18%, respectively.

Hedge Funds

Hedge funds focused on Chinese markets outperformed indexed exposure to the country in Q2 and H1. Average hedge fund returns of +12.91% and +20.46% beat the S&P China BMI which rose +8.96% and +15.46% in Q2 and H1 2015, respectively.

Firms domiciled within Asia have outperformed all other major domiciles in 2015, driven primarily by exposure to Chinese markets. Firms located in China and Hong Kong have performed best while those domiciled in Japan have lagged.

Firms domiciled in the Middle East have performed well in 2015, +6.14%. Despite its small relative size, the universe of Middle East domiciled firms is comprised of a diverse mix of strategies including dedicated EM, global LS and market neutral equity, FX and credit.