Hedge Funds See US$8.7 Billion Outflows As Of September 2016 YTD by Eurekahedge
Abacab Fund Sees Mispricing In Options As Black-Scholes Has Become “Inadequate”
Abacab Asset Management's flagship investment fund, the Abacab Fund, had a "very strong" 2020, returning 25.9% net, that's according to a copy of the firm's year-end letter to investors, which ValueWalk has been able to review. Commenting on the investment environment last year, the fund manager noted that, due to the accelerated adoption of many Read More
- Q3 2016 hedge fund letters
- Q2 2016 hedge fund letters
Key highlights for September 2016:
- Hedge funds recorded their fifth month of investor redemptions pushing net investor allocations into the red for the year with US$8.7 billion outflows as of September 2016 year-to-date – the steepest year-to-date redemptions since 2009. Nonetheless, investors have been selective in their allocations across strategies with CTA/managed futures and multi-strategy hedge funds seeing stronger subscriptions.
- The US$207.5 billion event driven hedge fund space has seen US$14.0 billion investor redemptions over the past nine months, the strategy’s steepest YTD outflows on record and up from US$1.5 billion outflows over the same period last year.
- Asset base for the US$1.49 trillion North American hedge fund industry grew by US$13.1 billion over the year with most of this growth attributed to performance-driven gains (US$18.5 billion year-to-date) while redemptions totalling US$5.5 billion were recorded over the same period.
- The US$254.6 billion CTA/managed futures hedge fund industry has seen its asset base grow by US$17.1 billion over the past nine months, with the strategy recording the highest year-to-date investor inflows (US$11.0 billion).
- The US$529.6 billion European hedge fund industry has seen its asset base contract by US$5.5 billion year-to-date, with managers seeing strong investor redemptions totalling US$17.1 billion over the past five consecutive months for the period ending September. The Eurekahedge European Hedge Fund Index was down 0.39% year-to-date.
- Within Asia Pacific, Japan dedicated strategies have been the worst performing, losing 3.00% while broad Asia ex-Japan mandates are up a modest 2.39% with strength led by underlying India focused hedge funds (+8.47% for the year). Indian hedge funds have outperformed the BSE Sensex Index which gained 6.69% over the past nine months.
- While underlying Greater China dedicated hedge funds fell 0.97% over the year, managers still beat underlying markets with the CSI 300 Index down 12.80% over the same period.
- The top performing North American hedge funds have returned 18% on average for the year, well ahead of the star performers in Asia and Europe which have gained around 8% each. Of the top 150 funds, 71% of North American managers posted double digit returns as of August 2016 year-to-date compared with 51% of managers over the same period in 2015. More details on this in the 2016 Key Trends in North American Hedge Funds report.
2016 Key Trends in North American Hedge Funds
Hedge funds were up 0.48% in September outperforming underlying markets, as represented by the MSCI AC World Index (Local) which gained 0.19% during the month. The trading scene was affected by a series of macro data, central bank meetings, OPEC and to a lesser extent the US Presidential debate. Strong jobs data throughout the past couple of months added to the rate hike anticipation at the Fed meeting, which however, ended with no action. The recent encouraging outcome of the OPEC meeting led to sustaining oil prices and stronger performance of commodity currencies versus the greenback mid-month onwards. Among regional mandates, Japan managers led the table, gaining 1.27% while distressed debt hedge funds lead gains among strategic mandates, gaining 1.12% in September.
On a year-to-date basis, hedge funds are up 3.33%, while the MSCI AC World Index (Local) was up a close 3.37% over the same period. Close to 15% of managers posted double digit returns in excess of 10% in 2016 year-to-date, with long/short equities and CTA/managed futures mandated hedge funds featuring strongly in this pool.
The US presidential elections will be the key to watch out for next month as Americans go to polls on November 9. Though polls are placing Hillary Clinton in the lead, and Trumpâ€™s locker room talk has been a disaster for his campaign, it might still be too early to write him off. With the memory of Brexit still fresh in our minds, it is perhaps best to remember that polls may not be telling it all and democracy may yet undermine itself again in 2016.
All regional mandates were up in September with Japan mandated hedge funds leading the table, gaining 1.27% despite the Nikkei 225 and Tokyo Topix ending the month down 2.59% and 0.51% respectively. Japanese equity markets traded higher at the start of the month as better US jobs data resulted in some yen weakness. However, Japanese markets declined as the Fed postponed the much anticipated rate hike and together with the concerns over the Deutsche Bank saga, yen was driven higher towards month-end. North American hedge funds were up 0.93% during the month, outperforming the S&P 500 Index which declined 0.12% as a series of events from the US Presidential Debates and banking woes from Europe led to investor jitters. Latin American hedge funds were up 0.85% outperforming the MSCI Latin America Index IMI (Local) which declined 0.30%. Asia ex-Japan and European hedge fund managers were also up this month, gaining 0.48% and 0.45% respectively.
On a year-to-date basis, Latin American hedge funds led the table with gains of 17.24% with performance held up by the regionâ€™s well-performing equity markets. Brazilâ€™s Ibovespa Index gained 34.64% year-to-date, allowing managers to profit from their long books throughout the past nine months. This is followed by North American and Asia ex-Japan mandated hedge funds which were up 5.41% and 2.39% respectively over the past nine months. On the other hand, European and Japanese hedge funds languished in negative territory, declining 0.39% and 3.00% respectively over the same period.
Mizuho-Eurekahedge Asset Weighted Index
The asset weighted Mizuho-Eurekahedge Index was up in September, gaining 0.07%. It should also be noted that the Mizuho-Eurekahedge Index is US dollar denominated, 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 declined 0.58% in September.
Performance was mixed across the board among the suite of Mizuho-Eurekahedge Indices with the Mizuho-Eurekahedge Asia Pacific Index posting the best gains, up 0.84% during the month. This is followed by the Mizuho-Eurekahedge Emerging Markets Index which gained 0.60% over the same period. The Mizuho-Eurekahedge Long Short Equities Index was also up with 0.50% gains whilethe Mizuho-Eurekahedge Multi-Strategy Index lost 0.11% over the same period.The Mizuho-Eurekahedge Top 100 Index also languished in September,declining by 0.23%. As at 2016 year-to-date, the Mizuho-Eurekahedge Emerging Markets Index led the tables up 13.59% while the Mizuho-Eurekahedge Multi-Strategy Index posted a marginal decline of 0.41% over the same period.
CBOE Eurekahedge Volatility Indexes
The CBOE Eurekahedge Volatility Indexes comprise four equally-weighted volatility indices â€“ 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 September, the CBOE Eurekahedge Relative Value Volatility Hedge Fund Index led the tables with gains of 0.62%, followed by the CBOE Eurekahedge Short Volatility Hedge Fund Index which gained 0.47% on the back of subdued volatility levels during the month. On the other hand, CBOE Tail Risk Volatility Hedge Fund Index and the CBOE Eurekahedge Long Volatility Hedge Fund Index fell into negative territory, down 3.20% and 0.69% respectively this month. It should be observed though that tail risk and long volatility strategies are designed to deliver outsized returns during periods of extreme market volatility thereby providing overall portfolio level protection, hence losses can be expected during normal market conditions.
On a year-to-date basis, the CBOE Eurekahedge Relative Value Volatility Hedge Fund Index posted the best gains, up 6.77%. This is followed by the CBOE Eurekahedge Short Volatility Index which gained 1.55% over the same period. On the other hand, the CBOE Eurekahedge Tail Risk Hedge Fund Index posted the steepest decline, down 12.10% followed by the CBOE Eurekahedge Long Volatility Index which was down 1.84% over the past nine months.
Summary monthly asset flow data since January 2012
Based on 50.56% of funds which have reported September 2016 returns as at 13 October 2016
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