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Hedge Funds Outperform Underlying Markets By 4.85% In August

Hedge Funds Outperform Underlying Markets By 4.85% In August by Eurekahedge

Key highlights for August 2015:

  • Hedge funds preserved gains to outperform underlying markets by 4.85% in August. On a year-to-date basis, hedge funds are up 1.29% while the MSCI World Index is down 1.90%, translating into an outperformance of 3.19% for the year.
  • Hedge fund assets under management increased by US$91.8 billion in the first eight months of 2015, with US$60.1 billion of investor inflows accounting for more than half of this gain.
  • Hedge fund assets under management increased by US$91.8 billion in the first eight months of 2015, with US$60.1 billion of investor inflows accounting for more than half of this gain.
  • Asia ex-Japan hedge funds lost 5.12% in August as Greater China counters were among the hardest hit — down 8.57%.
  • European managers grew their asset base by roughly 6% in the first eight months of 2015, on the back of strong investor inflows totaling US$21.7 billion.
  • CTA/managed futures strategies have seen the highest year-to-date inflows among all strategic mandates, with net inflows of US$29.0 billion.
  • Among developed market investment mandates, Australia/New Zealand, Japan and European dedicated hedge fund managers lead with gains of 5.89%, 4.99% and 4.00% respectively as of 2015 year-to-date.
  • In the month of August, the CBOE Eurekahedge Tail Risk Index and CBOE Eurekahedge Long Volatility Index gained 4.64% and 1.81% respectively while most other hedge fund strategies were in the red. For more information about the indices, please refer to the press release and index methodology.
  • Hedge funds fell into negative territory this month – down 1.81%%1, though comfortably outperforming underlying markets as the MSCI World Index2 lost 6.66%. Equity markets were down across the board this month with Chinese equity markets posting double-digit losses in the aftermath of the Chinese stock market correction. Disappointing macroeconomic data from China pointed towards a less optimistic outlook for Asia Pacific’s largest economy despite aggressive government intervention to ensure the country’s liquidity cushion is maintained. Fears of a financial contagion led equity markets down this month as investors were wary of a spill over from China’s volatile markets. North American, European, Japanese and Latin American equity markets registered losses during the month while Chinese stock markets were the worst casualties of the August equity sell-off. Meanwhile, mixed market data from the US together with comments from some Fed committee members seem to have pointed towards a possibility of the September rate hike; however, with the events happening in China, the Fed seems to remain dovish on its hike timing. The market this year has been rather eventful with Greece taking up much of the market’s attention during the earlier part of the year, while China’s equity markets witnessed sharp rise before giving back all of their gains for the year. Diverging monetary policy stance of major world economies saw some interesting trends in investor sentiments while the markets see-sawed as macroeconomic data from economic powerhouses were disappointing or mixed at best. The Chinese government intervened heavily as warning signals pointed towards a potential correction in its stock market with the devaluation of the yuan causing further panic in the markets over fears of currency war. Fortunately, central bankers were able to agree on refraining from competitive currency devaluation during the recent G-20 Summit in the hopes of a more optimistic global economic outlook.

July and August 2015 returns across regions

Hedge Funds

All regional mandates fell into negative territory this month as global uncertainty added to investor nervousness however, Japanese managers were the best performing mandate among all regions, declining 0.35% while still outperforming underlying equity markets — the Nikkei 225 and the Tokyo Topix lost 8.23% and 7.38% respectively. Similarly, European managers, though down 1.38% during the month also outperformed underlying equity markets — the DAX and EuroStoxx 50 were down 9.28% and 9.19% respectively. North American mandated funds also outperformed the S&P 500 by 4.11% despite posting negative losses this month. While Asia ex-Japan dedicated hedge funds posted the worst returns among all regional mandates – down 5.12%, managers nonetheless outperformed underlying markets as the MSCI Asia Pacific ex Japan Index3 were down 8.53%.

On a year-to-date basis, Japanese hedge fund managers lead the tables with gains of 4.99% while European managers came in second with gains of 4.00%. Strong gains made earlier in the year also saw Asia ex-Japan managers coming in third with gains of 2.81% year-to-date. On the other hand, North American managers returned 0.15% year-to-date while Latin American managers performed the worse down 1.32%.

2015 year-to-date returns across regions

Hedge Funds

Mizuho-Eurekahedge Asset Weighted Index

The asset weighted Mizuho-Eurekahedge Index fell into negative territory in August, down 2.01% with the index’s heavy weight CTA/managed futures and macro strategy funds falling 2.72% and 1.01% respectively. It should also be noted that the Mizuho-Eurekahedge Index is US dollar dominated, 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 was down 1.44% in August.

While losses were registered across the board among the suite of Mizuho-Eurekahedge Indices, the Mizuho-Eurekahedge Main Index fared relatively better registering a loss of 2.01% in August, followed by the Mizuho-Eurekahedge Long Short Equities Index which was down 2.18%. The Mizuho-Eurekahedge Asia Pacific Index performed the worst this month with losses of 5.00%, as its major constituent — underlying long/short equities focused funds were down 8.81%. On a year-to-date basis, the Mizuho-Eurekahedge Top 100 Index leads among the asset weighted indices with a marginal loss of 0.25%, followed by the Mizuho-Eurekahedge Main Index which was down 0.94%. The Mizuho-Eurekahedge Emerging Markets Index performed the worst with losses of 8.28%. The USD Index gained 6.27% year-to-date.

Mizuho-Eurekahedge Indices August 2015 returns

Hedge Funds

Mizuho-Eurekahedge Indices August 2015 year-to-date returns

Hedge Funds

CBOE Eurekahedge Volatility Indexes

The CBOE Eurekahedge Volatility Indexes comprises 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 August, the CBOE-Eurekahedge Tail Risk Index the led the tables with gains of 4.64% during the month followed by the CBOE-Eurekahedge Long Volatility Index which gained 1.81% as volatility levels spiked during the month, with the VIXX index breaking past the 40 mark. Relative value and short volatility focused funds posted losses this month — down 2.40% and 2.61% respectively during the month. On a year-to-date basis, the CBOE-Eurekahedge Relative Value Index is up 2.48% followed by the CBOE-Eurekahedge Short Volatility Index which has gained 2.11%.

CBOE Eurekahedge Volatility Indexes August 2015 returns

Hedge Funds

CBOE Eurekahedge Volatility Indexes August 2015 year-to-date returns

Hedge Funds

Summary monthly asset flow data since January 2012

Hedge Funds

1 Based on 52.28% of funds which have reported August 2015 returns as at 14 September 2015

2 MSCI AC World (Local)

3MSCI Asia ex Japan Index (Local)