Hedge funds started the year on a positive note, up 0.84% during the month of January. Meanwhile, underlying markets as represented by the MSCI AC World Index (Local) gained 1.49% over the same period. Among regional mandates, Latin American hedge fund managers topped the tables, gaining 3.47% while event driven managers posted the best returns, up 1.95% among strategic mandates. Financial markets were still hinged on the developments post-Trump win with US equity markets trading higher at the start of January on the back of encouraging US macro data. The flow of economic data from major economies outside of the US has also signalled an encouraging outlook on the global economy. However, this still has to be taken with a pinch of salt as we are yet to see the full impact of Trumpâ€™s protectionist policies on Americaâ€™s trade partners. While there are understandable jitters on an â€˜America Firstâ€™ rhetoric, Trump could be treading political sensitivities too precariously.
The Eurekahedge 50 Index, an annually rebalanced index comprising of 50 elite hedge funds with strong risk-adjusted returns and combined AUM of almost US$150 billion has been rebalanced for annual year 2017 and the new list of index constituents can be accessed here. The Eurekahedge 50 Index was up 4.33% in 2016, outperforming the average billion dollar hedge fund by almost 200 basis points during the year.
Below are the key highlights for the month of January 2017:
- Hedge funds gained 0.84% in January with underlying markets, as represented by the MSCI AC World Index (Local) up 1.49% over the same period. Over the past year, hedge funds were up 4.54% with managers posting eight consecutive months of gains since February 2016. Close to one-quarter of hedge fund managers posted double digit returns for annual year 2016.
- Among developed mandates, North American hedge funds were up 1.05%, followed by Japan and European mandated hedge funds which gained 0.75% and 0.57% respectively for January. Over the past year, North American hedge funds managers topped 2016 returns among developed mandates (+7.74%) while Europe and Japan managers posted modest gains.
- Among strategic mandates, event driven hedge funds posted the best January 2017 returns, gaining 1.95%, followed by long/short equities and distressed debt hedge funds which were up 1.65% and 1.52% respectively.
- Emerging market mandates were up 2.41% for the month with strength led by underlying Latin America and Eastern Europe/Russia mandates. Frontier markets, as represented by the Eurekahedge Frontier Markets Hedge Fund Index was up 2.12% for January.
- The Eurekahedge CTA/Managed Futures Hedge Fund Index declined 0.65% for the month with underlying trend-following hedge funds leading much of the weakness, down 1.17% over the same period. Underlying FX-focused managers were down 0.49% while their commodity-focused peers gained 1.03%.
- Asia ex-Japan hedge funds started 2017 on a positive note, up 1.79% for the month with strength led by underlying Greater China focused funds which gained 2.16% over the same period. India focused hedge funds were also positive with a 4.60% increase during the month. Over the past year, Asia ex-Japan managers struggled to eke out gains and were up a marginal 0.08% with performance dragged by Greater China focused funds which were down 4.09%.
- Among volatility-focused hedge funds, short volatility hedge funds posted the best performance for January, gaining 1.66%, followed by relative value volatility hedge funds which gained 0.59% over the same period. Over the past year, relative value volatility focused hedge funds posted the best gains, up 7.38% followed by short volatility focused managers who were up 5.27%.
All regional mandates started the year on a positive note with Latin American managers topping the table among peers, gaining 3.47% during the month with performance supported by strength in the regionâ€™s equity markets. The Ibovespa Index climbed 7.38% in January. Emerging markets and Asia ex-Japan mandated hedge funds were also in positive territory this month, gaining 2.41% and 1.79% respectively with underlying Greater China focused hedge funds up 2.16% during the month. North American hedge fund managers gained 1.05% buoyed by well-performing equity markets which traded higher on the back of encouraging macro data and corporate earnings from the US. The US Dollar Index declined 2.64% in January, proving to be a ‘stumbling block’ for equity markets in Europe and Japan with the Euro Stoxx 50 and the Nikkei 225 Index down 1.82% and 0.38% respectively. Europe and Japan hedge fund managers ended the month a modest 0.57% and 0.75% respectively.
Over the past year, Latin American managers topped the tables, gaining an impressive 19.49%. Emerging markets mandated hedge funds gained 7.94%, with strength led by underlying Eastern Europe and Russia mandated funds. North American hedge fund managers ended the year up 7.74% whereas regional peers in Europe, Asia ex-Japan and Japan posted modest returns of 0.06%, 0.64% and 0.08% respectively.
Performance across strategic mandates was mixed this month, with CTA/managed futures managers posting losses of 0.65% in January. The correction in the US dollar caught managers on the other side of the trade with losses extending from long positions in energy to long positions in the US dollar against major currencies. Short exposure into precious metals were also among performance detractors for CTA/managed futures funds as the weakening in the US dollar led precious metals to trade higher during the course of the month. On the contrary, managers posted gains on long exposure into industrial metals as positive Chinese trade and economic data led industrial metals on an uptrend. Among underlying sub-strategies within the CTA/managed futures mandate, trend following hedge fund managers posted the steepest decline, down 1.17% followed by FX-focused managers with losses of 0.49%. It can be said that currency-themed positions were a major performance detractor for trend-following and FX strategies, as the greenback correction led to losses on long USD positions. On the other hand, commodity-focused managers gained 1.03% thanks to the weakening of the US dollar and supply-side weather-related concerns leading to rallies in agricultural commodities.
On the other hand, event driven mandated hedge funds posted the best gains, up 1.95%, followed by long/short equities mandated hedge funds which were up 1.65%. Strength in equity markets were led by North American and Latin American markets while equity markets in other regions such as Asia and Europe proved to be partly affected by the greenback correction during the course of the month. Underlying equity long-bias managers posted the best gains among sub-strategies within the long/short equity mandate, gaining 1.95% while equity short-bias managers posted losses of 3.21%. Despite mixed performance in regional equity markets, economic macro data from major economies seem to point towards an encouraging start to the year with signs of inflation in the Eurozone, and improving data from China among others.
Distressed debt hedge funds started the year on a positive note gaining 1.52% following improving valuation of underlying corporate assets, though it still remains to be seen if distressed debt managers can ‘hold the fort’ amid economic uncertainties this year. Multi-strategy and relative value mandated hedge funds gained 1.16% and 1.14% respectively in January with strength in relative value hedge funds led by short volatility focused managers as the CBOE VIX Index fell to 11.99 at the end of the month. Fixed income and arbitrage mandated hedge funds follow next with gains of 0.92% and 0.27% respectively while macro managers gained a marginal 0.01% over the same period.
Looking at the full list of Eurekahedge Strategy Indices in Table 1 below, equity long-bias and event driven managers feature strongly on a January 2017 year-to-date basis, with gains of 1.95% each while at the other end of the spectrum, tail risk volatility and equity short-bias managers posted the steepest year-to-date losses, down 3.33% and 3.21% respectively.
Table 1: Index Flash Strategy Return Map
1 Based on 52.61% of funds which have reported January 2017 returns as at 14 February 2017