Hedge Funds Up +1.10% In April, Bringing YTD Returns To +0.83% by eVestment

Summary

Aggregate hedge fund performance was positive for a second consecutive month in April, a welcome sight after four straight months of declines. Surging commodity prices were a benefit to investors, who returned to commodity hedge funds in June after several years of redemptions. Commodity price gains, along with a falling USD was a boon for emerging markets in April, but did not benefit all, as some large managed futures funds posted elevated losses.

Two-thirds of reporting funds were positive during the month, but it was the smaller managers leading the way, a theme which has persisted in 2016.

Commodity & Distressed Hedge Funds Lead, Macro Lagged in April

Hedge funds returned +1.10% in April and are +0.83% YTD 2016.

As with any universe of investment products with multiple strategy and asset classes of focus, hedge funds have produced a wide variety of performance in 2016. April returns were generally positive, 2/3 of reporting funds were up during the month, but smaller funds outperformed larger managers, a trend which has persisted throughout the year.

Commodity funds excelled in April and distressed funds rebounded for a second consecutive month. There were pockets of losses from macro and large managed futures funds which weighed on industry returns.

Performance Overview

Hedge Funds

Hedge Funds

  • Commodity hedge funds produced average aggregate returns of +4.10% in April, bringing YTD returns to +6.01%. The group benefitted from a surge of higher prices across the commodity spectrum during the month, something which appeared to hurt larger managed futures funds.
  • After more than three years of negative investor sentiment, investors returned to the commodities segment in June 2015 and have since allocated $5.4 billion. It is worth noting that investors appeared ahead of the curve, allocating to the segment while performance was still in decline in 2015. 2016 is the third best Jan-Apr start in the last ten years for commodity hedge funds, behind 2011 (+14.66) and 2008 (+12.89%).
  • After a significant stretch of losses, creating a drawdown dating back to July 2014, credit hedge funds posted their second consecutive large gain in April. The group returned an average of +2.15%, which brings YTD returns positive, +1.92%.
  • In the last two months, credit hedge funds have posted their best monthly results since the world was exiting the global financial crisis. Not since July and September 2009 has this universe of credit hedge funds seen their aggregate positioning lift them by as much as in March and April 2016. This should put into perspective the significance of the opportunity for gains, and losses, credit strategies have faced in the last two years. The main difference between the current period and the financial crisis was the length of time. During the crisis, losses were focused in a three-month span.
  • Activist hedge funds posted a second consecutive positive month in April, returning an average of +1.27%. Gains in April followed a significant rise in March and the group is now +1.13% in 2016, slightly underperforming the S&P 500 TR and global equity benchmarks.
  • Managed futures hedge funds have taken in more new money than any other hedge fund segment in 2016. Performance in April was slightly positive in aggregate, however larger funds, those which gained the most new money in 2015, were negative, -2.19%. For the year, large managed futures funds are +0.21% and lag their smaller peers.
  • Multi-strategy funds, the industry’s biggest asset gainers in 2015, had been under pressure to begin 2016. The group posted slight gains in April, a third consecutive positive month after three consecutive monthly declines into January 2016.

Brazil and Russia Exposure Drove EM Gains in April

Emerging market hedge funds returned +2.50% in April and are +2.73% YTD through April 2016.

Emerging market funds with exposure to Russia and Brazil have benefitted from rebounding commodity prices and relief in the form of a weakening US Dollar. These two segments are producing the largest gains in the hedge fund industry in 2016.

China-focused funds were positive in April, but have lead emerging market fund returns to the downside in 2016.

Regional Performance Overview

Hedge Funds

  • Hedge funds focused on Russia have been producing outstanding performance in 2016, following a positive year in 2015. The universe is +20.45% in 2016 after returns +8.51% in April. The group produced good returns in 2015 (+8.33%) and are the best performing emerging market exposure over the last two years.
  • Brazil funds followed one of their best months ever in March with another very strong month in April. The universe is the best performing hedge fund segment in 2016, after being the worst in 2015. Brazil’s currency has strengthened in 2016 after three years of declines which accelerated significantly in 2014/2015.
  • China funds saw their first meaningful investor redemptions in March since losses and volatility escalated in mid-2015. April’s gains of +0.66% were welcomed, but the YTD average decline of -6.49% is below both the MSCI and S&P China equity indices.

Sub-sector Overview

Hedge Funds

Hedge Funds

  • Hedge funds focused on energy equities continued to rebound in-line with the commodity’s price. Average gains of +3.04% bring YTD returns to +1.29% after losses of -11.27% in 2015.
  • Healthcare-focused strategies also benefited from their sector’s rebound in April, but remain highly negative for the year. Returns of +3.52% in April outpaced the S&P Health Care index (+2.93), but the universe is significantly underperforming that benchmark in 2016, declining -7.18% vs. -2.73%, respectively.
  • Hedge funds focused on securitized credit markets produced good enough returns in April to lift the universe into positive territory in 2016. MBS-focused products led the way, but the universe’s returns were fairly well-distributed.

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