Hedge funds were up 0.48% during the month of November, with 2016 year-to-date returns coming in at 3.60%. Meanwhile, underlying markets as represented by the MSCI AC World Index (Local) gained 2.88% in November with its 2016 year-to-date returns at 4.88%. Roughly 56% of underlying constituent funds for the Eurekahedge Hedge Fund Index were in positive territory this month, with majority of them being long/short equities mandated. North American hedge fund managers posted the best returns among regional peers this month, with gains of 2.07% while among strategic mandates, event driven hedge funds led the tables with gains of 2.13%.

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We believe that 2017 will hold more volatility in store for the markets. While the Trump driven reflation theme could be a positive driver for the US economy, it is too early to discount the damage to the US and world economy from his protectionist trade views. Further a strengthening USD will act as another check on the recovery within the US economy and it is very likely that the Fed might be able to slot only one rate hike in 2017 once the euphoria around ‘Trumponomics’ is grounded. The Eurozone will be another source of anxiety for the markets, where a fledgling economic recovery, a possibly (relatively) painless recovery for the UK post-Brexit and the social tensions arising from immigration would embolden and tilt the odds in favour of Euro-sceptics. Across emerging markets, uncertainty arising from Trump’s anti-trade rhetoric coupled with the capital outflows could impact growth. The question remains – while Trump moves to America first, will the US Fed follow suit or continue to act as the world’s central bank?

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

  • Hedge funds gained 0.48% in November and 3.60% year-to-date with underlying markets, as represented by the MSCI AC World Index (Local) up 4.88% for the year. Almost 19.3% of global hedge funds have posted double digit gains in 2016, up from 17.6% in 2015 and well below 38.4% in 2013.
  • Among developed mandates, North American hedge funds lead the gains in November up 2.07%, followed by Japanese hedge funds which were up 1.14% while European hedge fund managers languished in negative territory, down 0.39%. On a year-to-date basis, North American hedge funds gained 6.95% while European and Japanese peers lost 1.25% and 0.22% respectively.
  • Emerging market mandates have preserved their gains for 2016 and are up 7.11% year-to-date with strong showing from underlying Latin America and Eastern Europe/Russia mandates. The Eurekahedge Frontier Markets Hedge Fund Index is up 7.62% for the year with ongoing OPEC-Russia led support for Oil prices likely to buoy their returns further.
  • Among strategic mandates, distressed debt hedge funds posted the best 2016 year-to-date returns, gaining 11.94%, followed by event driven and relative value hedge funds which were up 8.86% and 7.46% respectively.
  • The Eurekahedge CTA/Managed Futures Hedge Fund Index posted the steepest decline among strategic mandates in October and lost 0.27%, with underlying FX and commodity-focused strategies declining 1.21% and 0.19% respectively while trend-following mandates were up 0.73%.
  • Asia ex-Japan hedge fund managers were down 1.23% during the month ‘up 0.57% for the year and on track to post their worst performance since 2011. Underlying Greater China mandated equity long/short funds remained firmly in the red with losses of 2.90%.
  • Modi’s surprise de-monetisation move coincided with troubles for emerging markets post Trump win with India dedicated hedge funds down 4.84% in November, eroding the bulk of their gains for the year.

Hedge Funds

Hedge Funds

Main Indices

Hedge Funds

Regional Indices

Financial markets hinged on the US Presidential Elections in early November and Trump’s unexpected win became a primary driver in the markets. In the days leading up to the elections, investors flocked to safe haven assets, which rallied immediately after an unexpected Trump victory. Nonetheless, the world got over the initial shock and global equity markets subsequently rebounded with the S&P 500 Index ending the month up 3.42% and the DJIA Index up 5.41% over the same period. In retrospect, 2016 has been a rather unexpected year, particularly in the events surrounding Brexit and the US Presidential Elections, with both Donald Trump and Theresa May in the process of ‘charting new territories’ as the New Year arrives. Further, the rise of populist leaders puts the Eurozone area under the spotlight where similar developments could cast doubt on the EU as a ‘going concern’.

Performance across regional mandates was a mixed bag in November, with North American hedge funds leading the table, up 2.07% during the month as manager performance was propped up by the strength in underlying equity markets post-Trump victory. The S&P 500 climbed 3.42% in November and is up 7.58% on a year-to-date basis. Japanese hedge fund managers also posted positive performance with gains of 1.14% during the month. The USD regained its strength after the initial shock on an unexpected Trump victory, as well as a hawkish Fed signalling a chance of a December rate hike. This resulted in the subsequent weakening of the Yen and a stronger performance of Japanese equity markets – Nikkei 225 Index gained 5.07% during the month. On the other hand, Latin American and Asia ex-Japan hedge funds managers were in the red in November, down 3.61% and 1.23% respectively. Latin American equity markets were in the red this month, after the results of the US Presidential Elections with the Ibovespa declining 4.65%.

On a year-to-date basis, Latin American hedge funds lead the table, gaining an impressive 17.25% over the past 11 months, thanks to the performance of underlying equity markets and the recovery in oil prices. Brazil’s Ibovespa index gained 42.81% over the same period, allowing managers to profit from their long books throughout the year. North American hedge funds also posted good returns, up 6.95%, followed by Asia ex-Japan managers who were up a modest 0.57% year-to-date. On the other hand, European and Japanese hedge fund managers fell into negative territory, down 1.25% and 0.22% year-to-date respectively.

Hedge Funds

Strategy Indices

Performance was mixed across strategic mandates, with event driven hedge funds posting the best performance in November, gaining 2.13%. This is followed by relative value hedge funds which were up 1.85% over the same period with much of the strength supported by underlying short volatility hedge funds, as represented by the CBOE Eurekahedge Short Volatility Hedge Fund Index, which gained 1.27% during the month. Volatility levels, as represented by the CBOE VIX Index traded lower nearing month end, propping the performance of managers undertaking short volatility positions. Distressed debt hedge funds also posted positive gains during the month and were up 1.69%. Long/short equities hedge fund managers grew by 0.81% as the global equity markets recovered after the uncertainties surrounding the US elections, leading to rallies in financial and industrials sectors. Arbitrage hedge funds were also up, gaining 0.73% followed by macro-mandated hedge funds which gained 0.44% during the month.

Fixed income, multi-strategy and CTA/managed futures hedge funds were in the red this month, declining 0.04%, 0.07% and 0.27% respectively. CTA/managed futures hedge posted

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