CTA/managed futures mandated hedge funds had highest investor inflows among mandates in 2016

Image source: Pixabay

Image source: Pixabay

Key highlights for 2017:

2016 Hedge Fund Letters

• Hedge funds started the year up 0.87% in January with managers reporting performance-based gains of US$1.3 billion. Investor subscriptions stood at US$1.2 billion during the start of the year. In annual year 2016, final asset flow figures show that manager saw redemptions totalling US$55.1 billion while performance-based gains stood at US$35.1 billion over the same period.
• For annual year 2016, AUM for European mandated hedge funds declined 5.47% with strong redemptions of US$27.0 billion recorded – the steepest outflows for 2016 among regional mandates.
• The US$251.1 billion CTA/managed futures mandated hedge fund industry saw the highest net investor inflows among strategic mandates for annual year 2016 (US$11.0 billion). Managers posted modest performance-driven gains totalling US$2.7 billion over the same period.
• The US$774.0 billion long/short equities hedge fund industry recorded the steepest decline in net outflows among strategic mandates or US$29.1 billion in annual year 2016 while performance-based gains stood at US$8.7 billion over the same period.
• Asian managers saw asset decline of US$1.8 billion for annual year 2016, with total net outflows of US$3.4 billion recorded, while performance-based gains stood at US$1.6 billion. The Asian hedge fund industry oversees 8% of total global assets, or US$169.6 billion in AUM as of 2016.
• Long-only absolute return funds gained 7.61% in 2016, well ahead of underlying markets and hedge fund peers which were up 7.33% and 4.46% respectively. Asia is home to 43% of assets in the US$225.9 billion long-only absolute return funds industry is concentrated within the region alone.

2016 Overview: Key Trends in Long-Only Absolute Return Funds

Hedge Funds

Hedge funds started the year on a positive note, up 0.87% 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 3.73% while event driven managers posted the best returns, up 2.02% among strategic mandates. Financial markets were still hinged on the developments post-Trump inauguration 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 Trump’s protectionist policies on America’s trade partners. While there are understandable jitters on an “America First” rhetoric, Trump could be treading political sensitivities too precariously.

January 2017 and December 2016 returns across regions

All regional mandates were in positive territory during the month, with Latin American mandated hedge funds topping the table, up 3.73%. Latin American equity markets performed strongly in January with the Ibovespa Index gaining 7.38% for January, supported by the rally in underlying Brazilian metals companies following news on the Chinese steel cut productions. Asia ex-Japan managers were also up posting gains of 1.93%. This is followed by Japan mandated hedge funds which were up 1.19%. North American and European mandated hedge funds were also up in January with gains of 0.94% and 0.56% respectively.

2017 year-to-date returns across regions

Mizuho-Eurekahedge Asset Weighted Index

The asset weighted Mizuho-Eurekahedge Index gained 0.95% in January. 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 2.64% in January.

Performance was positive across the board among the suite of Mizuho-Eurekahedge Indices with the Mizuho-Eurekahedge Emerging Markets Index posting the best gains, up 3.08% during the month. This is followed by the Mizuho-Eurekahedge Asia Pacific Index and the Mizuho-Eurekahedge Long/Short Equities Index whichposted gains of 2.17% and 2.06% respectively. The Mizuho-Eurekahedge Multi-Strategy Index was also up this month, gaining 0.58%, followed by the Mizuho-Eurekahedge Top 100 Index which gained 0.41% over the same period.

Mizuho-Eurekahedge Indices January 2017 returns

Mizuho-Eurekahedge Indices 2017 year-to-date returns

CBOE Eurekahedge Volatility Indexes

The CBOE Eurekahedge Volatility Indexes comprise four equally-weighted volatility indices – 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 January, the CBOE Eurekahedge Short Volatility Hedge Fund Index led the tables with gains of 1.66%, followed by the CBOE Eurekahedge Relative Value Volatility Hedge Fund Index which gained 0.59%.The CBOE Eurekahedge Long Volatility Hedge Fund Index and the CBOE Eurekahedge Tail Risk Hedge Fund Index declined 1.38% and 3.33% respectively as volatility levels fell towards the end of the 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.

CBOE Eurekahedge Volatility Indexes January 2017 returns

CBOE Eurekahedge Volatility Indexes 2017 year-to-date returns

Summary monthly asset flow data since January 2012

Eurekahedge

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