48% of Hedge Fund managers in the red year-to-date through May

Index Flash Update (14 June 2016 ) – Hedge funds gain 0.42% in May with 48% of managers in the red year-to-date

Also see Top Hedge Fund Letters To Investors

Hedge funds were up 0.42% in May while underlying markets, as represented by the MSCI World Index1 were up 1.28% over the same period. Managers held their ground despite tight markets in May with mid-month reversals across commodities, and weaker equity performance in developing markets affecting the trading scene. Among profitable moves for managers were some short Chinese names as markets fell earlier in the month. On the FX front, long USD positions on the back of relative dollar strength contributed to gains. Meanwhile, fluctuations on the GBP/USD caused by the ongoing ‘Brexit’ debate resulted in difficult trading ranges for some managers. With disappointing non-farm payroll (NFP) numbers from the US, the chances of a summer rate hike by the Fed look quite uncertain despite this being an otherwise sensible course of action to take. While this might be a good opportunity for the Bank of Japan (BoJ) to step in with additional easing and take some pressure off the Fed, the chances of that happening given the recent fiscal easing remain low. That said, we could be in for a hot summer that could make investors sweat.

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Below are the key highlights for the month of May 2016:

  • Hedge funds were up 0.42% during the month and up 0.76% as at end-May 2016. On a year-to-date basis, 48% of managers were in the red this year compared to 20% of managers who reported year-to-date losses over the same period last year.
  • Distressed debt hedge funds posted the best gains during the month – up 1.65% with year-to-date returns of 2.64%. Distressed debt managers have had a rebound in 2016, compared to their performance over in 2015 (up 2.15% May 2015 year-to-date and down 4.41% in 2015).
  • Latin American mandated hedge funds were the worst performers during the month, down 0.35%. Nonetheless, Latin American managers have outperformed the MSCI Latin American Index2 which was down 6.01% over the same period.
  • Asia ex-Japan managers gained 0.35% during the month and lost 1.98% year-to-date. Meanwhile underlying Greater China hedge funds dropped by 1.44% in May, with losses of 5.73% on a year-to-date basis, outperforming the CSI 300 Index which has declined 15.05% as of May 2016 year-to-date.
  • Among developed market mandates, North American and Japanese managers were up 1.09% and 1.07% respectively, followed by European managers with gains of 1.01%. On a year-to-date basis, North American managers led with 2.01% returns following a recovery from their February lows.
  • Japanese hedge funds were down 2.91% in the first five months of 2016, their worst year-to-date return on record. A survey of Japanese investors reveals that 90% anticipate further easing from the Bank of Japan this year. A brief summary of the survey results is available in a slide presentation on the Eurekahedge Dashboard. For a full report of the results and analysis, please contact [email protected]
  • The CBOE Eurekahedge Short Volatility Hedge Fund Index was up 1.95% during the month as volatility levels declined towards the latter half of May. On a year-to-date basis, short volatility managers were up 1.46%.
Main Indices May 20163 Last 3 Months 2016 Returns 2015 Returns Annualised Returns Constituents Weighting
Eurekahedge Hedge Fund Index 0.42 2.60 0.76 1.55 8.91% 2,722 Equal
Eurekahedge 50 0.66 1.85 -0.51 -0.01 5.27% 50 Equal
Eurekahedge North American Hedge Fund Index 1.09 4.32 2.01 -0.41 9.52% 639 Equal
Eurekahedge Asia ex Japan Hedge Fund Index 0.35 5.03 -1.98 7.50 10.48% 176 Equal
Index of the Month May 20163 Last 3 Months 2016 Returns 2015 Returns Annualised Returns Constituents Weighting
Eurekahedge Distressed Debt Hedge Fund Index 1.65 5.75 2.64 -4.41 10.57% 28 Equal

Main Indices

Eurekahedge Main Indices May 20163 2016 Returns 2015 Returns
Eurekahedge Hedge Fund Index 0.42 0.76 1.55
Eurekahedge Fund of Funds Index 0.62 -1.85 0.41
Eurekahedge Long-only Absolute Return Fund Index 0.17 1.62 -1.89
Eurekahedge Islamic Fund Index 0.03 -0.34 -1.86

Regional Indices

Among developed mandates, North American managers were up 1.09%, leading the table among regional mandates. European managers also posted gains during the month grew by 1.01%. Over in Asia, Japanese hedge funds increased 1.07% in May. The yen finished lower this month, on the back of relative dollar strength while the postponement of consumption tax hike has also supported Nikkei levels. Japanese equity performance led Asian markets throughout May with the Nikkei ending the month up 3.41%. The Eurekahedge Asia ex-Japan Hedge Fund Index was up 0.35% during the month with exposure into some Chinese technology and consumer names being the main drivers for some managers in May. Greater China managers, the index’s heavyweight, were down 1.44% during the month with losses extended from the sell-off in Chinese markets in May. On a year-to-date basis, Greater China managers lost 5.73%, though outperforming underlying markets as the CSI 300 Index fell 15.05% over the same period. Market enthusiasm into Latin American economies seems to have run out in May with Latin American managers at the bottom of the table, down 0.35% during the month. Political concerns in Brazil have led the equity markets lower in May as the interim Temer Administration has made little progress following Dilma Rouseff’s suspension. The IBOVESPA Index dropped 10.09% during the month – managers with exposure to Brazilian equities were hardest hit.

On a year-to-date basis, emerging market mandates lead the tables with the Eurekahedge Eastern Europe & Russia Hedge Fund Index up 10.34% followed by the Eurekahedge Latin America Hedge Fund Index which grew 8.51%. On the other hand, Japanese, Asia ex-Japan and European mandated hedge funds declined 2.91%, 1.98% and 1.25% respectively over the same period while North American managers were up 2.01% on a year-to-date basis.

Eurekahedge Regional Indices May 20163 2016 Returns 2015 Returns
Eurekahedge North American Hedge Fund Index 1.09 2.01 -0.41
Eurekahedge European Hedge Fund Index 1.01 -1.25 4.70
Eurekahedge Eastern Europe & Russia Hedge Fund Index -1.03 10.34 1.87
Eurekahedge Japan Hedge Fund Index 1.07 -2.91 6.85
Eurekahedge Emerging Markets Hedge Fund Index -0.21 1.90 3.11
Eurekahedge Asia ex Japan Hedge Fund Index 0.35 -1.98 7.50
Eurekahedge Latin American Hedge Fund Index -0.35 8.51 0.64

Strategy Indices

Among strategic mandates, CTA/managed futures and macro mandated hedge funds posted the steepest losses during the month of 0.62% and 0.45% respectively. Mid-month reversals for the commodities sectors affected some managers with exposure into softs, metals and energy while performance on the FX front was mixed. Much attention was focused on the anticipated Fed rate hike with long USD positions among profitable moves on the back a stronger USD. The rate cut by the RBA lead the Aussie dollar lower from mid-month onwards while the rally in the NZD proved to be short-lived with managers reporting losses on their long NZD/USD positions. Distressed debt and event driven managers led performance among strategies, and were up 1.65% and 1.57% respectively. Distressed debt managers captured profits as the high yield market, as represented by the Bank of America Merrill Lynch US High Yield Index, was up 0.72% during the month. Oil and mining companies remain on tenterhooks with more than half of defaults in 2016 coming from the said sectors, according to Moody’s. Arbitrage managers were up 1.10% during the month while long short equities managers held their ground and were up 0.97% over the same period despite mixed performance in the equity markets. Long positions into North American and European names were profitable as developed markets equities had a relatively better month compared to their counterparts from the developing world. For Asian long/short equity managers, short positions in some Chinese names also contributed to gains as Chinese equity markets finished the month lower.

Among the suite of CBOE Eurekahedge Volatility Indexes, short volatility managers pocketed good gains and were up 1.95% during the month as volatility levels, represented by the CBOE VIX declined towards the final week of May. Relative value volatility hedge funds were also up during the month, gaining 1.68% while long volatility managers were up a modest 0.03%. On the other hand, tail risk managers were down 1.90% during the month, the only volatility strategy to post negative returns in May. On a year-to-date basis, relative value volatility managers were up 4.59%, followed by short volatility managers who were up 1.46%. Tail risk hedge fund managers posted the steepest year-to-date figures and were down 4.43% while long volatility managers were down 0.87% over the same period.

Eurekahedge Strategy Indices May 20163 2016 Returns 2015 Returns
Eurekahedge Arbitrage Hedge Fund Index 1.10 2.68 4.93
Eurekahedge CTA/Managed Futures Hedge Fund Index -0.62 1.17 -0.80
Eurekahedge Distressed Debt Hedge Fund Index 1.65 2.64 -4.41
Eurekahedge Event Driven Hedge Fund Index 1.57 3.24 -1.63
Eurekahedge Fixed Income Hedge Fund Index 0.59 1.89 0.93
Eurekahedge Long Short Equities Hedge Fund Index 0.97 -0.49 3.09
Eurekahedge Macro Hedge Fund Index -0.45 0.15 1.60
Eurekahedge Multi-Strategy Hedge Fund Index 0.17 1.50 2.18
Eurekahedge Relative Value Hedge Fund Index 0.19 2.19 0.76
CBOE Eurekahedge Long Volatility Hedge Fund Index 0.03 -0.87 -1.07
CBOE Eurekahedge Relative Value Volatility Hedge Fund Index 1.68 4.59 4.47
CBOE Eurekahedge Short Volatility Hedge Fund Index 1.95 1.46 1.09
CBOE Eurekahedge Tail Risk Hedge Fund Index -1.90 -4.43 -9.51
Eurekahedge Trend Following Index 0.42 0.76 1.55
Eurekahedge Global Hedge Fund Indices by Fund Size May 20163 2016 Returns 2015 Returns
Eurekahedge Small Hedge Fund Index (< US$100m) 0.32 0.97 1.13
Eurekahedge Medium Hedge Fund Index (US$100m – US$500m) 0.70 0.48 2.84
Eurekahedge Large Hedge Fund Index (> US$500m) 0.30 -0.46 2.22
Eurekahedge Billion Dollar Hedge Fund Index 0.12 -0.51 1.75
Mizuho-Eurekahedge Indices May 20163 2016 Returns 2015 Returns
Mizuho-Eurekahedge Index – USD -0.68 -0.30 -0.69
Mizuho-Eurekahedge TOP 100 Index – USD -0.81 -0.99 0.85
Mizuho-Eurekahedge TOP 300 Index – USD -0.77 -0.74 0.00
Asia-Eurekahedge Indices May 20163 2016 Returns 2015 Returns
Eurekahedge Greater China Hedge Fund Index -1.44 -5.73 9.60
Eurekahedge India Hedge Fund Index 0.84 0.07 4.28

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1 MSCI World Index AC (Local)
2 MSCI Latin America IMI (Local)
3 Based on 51.51% of funds which have reported May 2016 returns as at 14 June 2016