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Hedge Funds End Their Four Month Losing Streak, Up 1.33% In October

Hedge Funds End Their Four Month Losing Streak, Up 1.33% In October by Eurekahedge

Key highlights for October 2015:

  • Hedge funds ended their four month losing streak, up 1.33% in October. Total hedge fund assets under management have grown by US$100.5 billion in 2015 with almost US$75 billion attributed to investor inflows.
  • Asia ex-Japan was the best performing regional mandate for the second consecutive month – up 3.46%, with Greater China mandated hedge funds gaining 5.49% over the same period. On a year-to-date basis, assets for Asia ex-Japan hedge funds have grown by US$8.5 billion.
  • European hedge funds recorded their seventh consecutive month of net investor inflows and have grown their asset base by almost US$40 billion year-to-date, with investor allocations accounting for the bulk of this growth.
  • CTA/managed futures hedge funds have seen their asset base grow by roughly 17% as of 2015 year-to-date, on the back of strong investor inflows totalling almost US$30 billion.
  • Among developed mandates, Australia/New Zealand, Japan and Europe mandated hedge funds lead with gains of 9.62%, 5.84% and 4.16% respectively while North American managers are marginally positive with gains of 0.45% as of 2015 year-to-date.

Hedge funds ended their four month losing streak, gaining 1.33% in October as most major equity markets ended the month in positive territory. Underlying markets as represented by the MSCI World Index1 posted strong gains during the month, up 7.22%. Central bank policies remained divergent with the European Central Bank (ECB) and the Bank of Japan (BoJ) rather dovish, reiterating their intent to meet inflation targets as part of their broader strategy to support growth in their respective economies. On the other hand, the Fed appears to be hinting at a long overdue rate hike in December which seems likely given the encouraging employment numbers coming out from the US as well as the stabilising outlook overseas – mainly China which appears to have weathered the worst for the moment.

Asia on the whole was the best performing regional mandate with Asia ex-Japan leading the table, followed closely by Japan. Asian equity markets ended the month in positive territory with the CSI 300 Index up 10.34% largely on the back of accommodative Chinese central bank policy despite soft macroeconomic data out of China. The Nikkei 225 and Hang Seng Indexes were also up during the month, gaining 9.75% and 8.60% respectively. Most Asian currencies were down against the greenback as the Fed proved to be hawkish on a 2015 rate hike. The Japanese yen proved to be an exception having gained 0.60% against the dollar during the month.

Among strategic mandates, CTA/managed futures hedge funds posted the steepest decline during the month as markets swung into positive territory. Funds with short positions in stock indices futures realised losses during the month, much to the detriment of a majority of trend-following CTA/managed futures hedge funds. On the other hand, event driven hedge funds performed the best among all strategic mandates due to an increase in corporate activity and acquisition volumes. Long/short equity hedge funds followed closely behind, largely on the back of good equity market performance during the month. While the markets caught some by surprise this month, it seems that investor sentiments have turned optimistic following rather encouraging central bank commentary, market buzz created by third quarter corporate earnings, and most notably the upswing in global equities. An interesting year-end lies ahead.

September and October 2015 returns across regions

Hedge Funds

October proved to be a good month for hedge funds, with all regional mandates in positive territory. Asia ex-Japan focused hedge funds led the table with gains of 3.46% in October followed by Japanese managers, up 2.17% during the month. While PMI data from China and Japan remain soft and economic growth was rather flat, largely accommodative central bank policies continued to drive optimism in the Asian market. While the BoJ remains dovish, the Bank has communicated its intent in achieving its inflation target. Over in the US, North American hedge funds gained 1.87%, with event driven mandated North American hedge funds posting the best gains among all North American strategic mandates on the back of a pick-up in global corporate activity. Despite increasing political volatility in Latin America, Latin American hedge funds have also managed to post positive gains during the month, up 1.66%. While the ECB has remained largely dovish, the central bank has hinted at the possibility of further easing its monetary policy as inflation figures still remain far from target. European hedge funds have also gained during the month, up 1.35% with the region?? multi-strategy mandated hedge funds posting the best gains among all European strategic mandates.

On a year-to-date basis, gains made earlier in 2015 saw Asia ex-Japan managers leading the tables up 7.29% followed by Japanese and European managers with increases of 5.84% and 4.16% respectively. North American hedge fund managers while also in positive territory had to contend with a year-to-date gain of 0.45%.

Hedge Funds

Mizuho-Eurekahedge Asset Weighted Index

The asset weighted Mizuho-Eurekahedge Index gained in October, up 0.47%. 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 up was up 0.62% in October.

Gains were recorded across the board among the suite of Mizuho-Eurekahedge Indices; the Mizuho-Eurekahedge Asia Pacific Index led the table during the month up 3.89%, followed by the Mizuho-Eurekahedge Emerging Market Index which grew by 2.69% over the same period. On a year-to-date basis, the Mizuho-Eurekahedge Asia Pacific Index maintained the lead, gaining 4.13% followed by the Mizuho-Eurekahedge Multi-Strategy Index which was up 2.04%. The Mizuho-Eurekahedge Emerging Market Index performed the worst with losses of 7.02%. On a year-to-date basis, the USD Index has gained 7.40%.

Mizuho-Eurekahedge Indices
October 2015 returnsHedge Funds
Mizuho-Eurekahedge Indices
October 2015 year-to-date returnsHedge 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 volatilit y 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 October, the CBOE-Eurekahedge Relative Value Index led the tables with gains of 2.10% followed by the CBOE-Eurekahedge Short Volatility Index which gained 1.43%. The CBOE-Eurekahedge Long Volatility Index and the CBOE-Eurekahedge Tail Risk Index fell 1.55% and 0.24% respectively as volatility levels measured by the CBOE VIX declined during the month. On a year-to-date basis, the CBOE-Eurekahedge Relative Value Index is up 5.83% followed by the CBOE-Eurekahedge Short Volatility Index which has gained 2.20%. Both the CBOE-Eurekahedge Tail Risk Index and the CBOE-Eurekahedge Long Volatility Index posted year-to-date losses of 3.40% and 0.06% respectively.

CBOE Eurekahedge Volatility Indexes
October 2015 returns
Hedge Funds
CBOE Eurekahedge Volatility Indexes
October 2015 year-to-date returns
Hedge Funds

Summary monthly asset flow data since January 2012

Hedge Funds

1 Based on 52.10% of funds which have reported October 2015 returns as at 13 November 2015

2 MSCI AC World Index All Core (Local)

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