Equity Short Biased Hedge Funds Down 11% YTD

Hedge funds ended their five-month winning streak, down 0.19%1 for June based on preliminary numbers for the month. The average return of the Eurekahege Hedge Fund Index was drawn into negative territory in June as developed market mandates underperformed their emerging market peers; with trend-following and macro strategies lagging behind the pack. Meanwhile, underlying markets as represented by the MSCI AC World Index (Local) were up 0.18% over the same period. Equity markets posted mixed results with European equities ending the month in the red whilst North American mandates posted modest gains. In contrast emerging market equity mandates were the bright spot led by strong gains for Chinese equities. Concerns over tightening monetary policy in developed markets (sans Japan) weighted on market sentiment, though there was some support from positive macro numbers coming out from China where Q2 GDP growth appears to be holding steady.

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Among regional mandates, Japan mandated hedge funds topped the table for the month with gains of 1.58%, followed by Asia ex-Japan and Latin America mandated hedge funds with 1.12% and 0.86% growth respectively. Emerging markets hedge funds were also up this month with 0.67%. On the other hand, European hedge funds posted a decline of 0.18% while North American fund managers posted modest returns of 0.32%. On a year to-date basis, hedge funds are up 3.03% while underlying markets grew 7.65%. Asia ex-Japan hedge fund managers lead the table up 9.10% followed by their emerging markets and Latin American counterparts witnessing growth of 7.41% and 6.79% respectively.

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Below are the key highlights for the month of June 2017:

  • Hedge funds lost 0.19% in June with underlying markets, as represented by the MSCI AC World Index (Local), up 0.18% over the same period. On a year-to-date basis, managers gained 3.03% while underlying markets were up 7.65%.
  • Among developed market mandates, Japanese hedge funds led on a year-to-date basis with 7.41% growth, followed by European hedge funds with 4.07% and North American hedge funds with 2.66%.
  • Among strategic mandates, equity long bias hedge funds led on a year-to-date basis, up 7.75%, followed by event driven hedge funds with 5.77% and short volatility hedge funds with 5.25%.
  • Emerging market mandates continued to outshine their developed market peers, with India, Greater China and Asia ex-Japan hedge funds posting returns of 14.61%, 12.05% and 9.10% respectively. Latin America and Eastern Europe mandated funds were also up 6.79% and 4.77% for the year.
  • Performance across fund sizes has varied, with mid-sized hedge funds (US$100 million - US$500 million) outperforming their billion dollar peers by almost 140 basis points for the year. The Eurekahedge Billion Dollar Hedge Fund Index was down 0.63% in June and up 1.77% year-to-date.
  • Systematic trend following strategies posted the steepest decline during the month, down 3.75% in June and 4.69% for the year. Long volatility hedge funds have been another casualty in 2017 with a loss of 6.55% in the first half of the year.
  • CTA/managed futures strategies dropped 1.95% for the year, with commodity focused hedge funds dipping 1.77% while FX focused strategies are up 1.99%.
Main Indices June 20171 Last 3 Months 2017 Returns 2016 Returns Annualised Returns Constituents Weighting
Eurekahedge Hedge Fund Index -0.19 0.65 3.03 4.52 8.82% 2,776 Equal
Eurekahedge 50 -0.21 0.31 2.66 4.27 5.45% 50 Equal
Eurekahedge North American Hedge Fund Index 0.32 0.74 2.66 7.91 9.53% 635 Equal
Eurekahedge European Hedge Fund Index -0.18 1.72 4.07 0.15 7.25% 305 Equal
Index of the Month June 20171 Last 3 Months 2017 Returns 2016 Returns Annualised Returns Constituents Weighting
CBOE Short Volatility Hedge Fund Index 0.42 1.95 5.25 5.09 8.85% 14 Equal

Main Indices

Eurekahedge Main Indices June 20171 2017 Returns 2016 Returns
Eurekahedge Hedge Fund Index -0.19 3.03 4.52
Eurekahedge Fund of Funds Index -0.08 2.75 -0.10
Eurekahedge Long-only Absolute Return Fund Index 0.61 9.63 7.51
Eurekahedge Islamic Fund Index 0.41 4.74 4.39

Regional Indices

Performance was a mixed bag across regional mandates with Asian hedge funds in the lead this month. Japanese hedge fund managers posted the best gains, reporting  1.58% growth and were followed by Asia ex-Japan mandated hedge funds which gained 1.12%. Japanese equity markets ended the month in positive territory with the Nikkei 225 Index up 1.95%. Meanwhile underlying Asia ex-Japan mandates also posted healthy gains as emerging market equities continue to receive interest from investors following a rally into US stocks in the post-Trump win era. MSCI’s decision to include China A-shares in its emerging market indices was also welcomed by the markets, with long terms on bulls on China seeing that as another sign of good things to come. Economic indicators coming out of China also indicated that growth in the economy was staying steady, which further supported underlying equity market valuations and impacted commodities (metals) positively. The Eurekahedge Greater China Hedge Fund Index grew 12.05% for the year, following losses of 4.58% in 2016.

Meanwhile, developed market equities appear to be coming under some pressure. With the Fed proceeding with its second rate hike for the year, the general expectation is for monetary policy to continue to tighten and for equities to give back some of their gains amidst stretched valuations. Tech-stocks which drove a substantial portion of the gains in US markets saw some corrections in June but not enough to onset any adverse investor sentiment. The Eurekahedge North America Hedge Fund Index was up 0.32% in June, with underlying equity long/short strategies being positive contributors with gains of 0.79%. Over in Europe, Draghi’s statements despite titling to the dovish side were not interpreted so and markets expect some level of convergence in US and Eurozone monetary policy. This along with the correction in EUR/USD put some pressure on markets, with underlying European equity markets posting losses and volatility edging up a notch higher. The Eurekahedge European Long/Short Equities Hedge Fund Index was down 0.24% for the month and grew 4.45% year-to-date.

On a year-to-date basis, Asia ex-Japan hedge fund managers topped the tables witnessing growth of 9.10%, followed by emerging markets and Latin American managers with gains of 7.41% and 6.79% respectively.

Eurekahedge Regional Indices June 20171 2017 Returns 2016 Returns
Eurekahedge North American Hedge Fund Index 0.32 2.66 7.91
Eurekahedge European Hedge Fund Index -0.18 4.07 0.15
Eurekahedge Eastern Europe & Russia Hedge Fund Index -0.26 4.77 23.08
Eurekahedge Japan Hedge Fund Index 1.58 5.23 1.72
Eurekahedge Emerging Markets Hedge Fund Index 0.67 7.41 7.07
Eurekahedge Asia ex Japan Hedge Fund Index 1.12 9.10 -0.50
Eurekahedge Latin American Hedge Fund Index 0.86 6.79 18.14

Strategy Indices

Performance across strategic mandates was a mixed bag this month with strength led by equity long bias, event driven and arbitrage hedge funds with gains of 0.56%, 0.54% and 0.57% respectively. Managers reported gains from exposure to developed market financials, shorts on US treasuries and German bunds, short USD versus EUR and GBP, as well as short position in gold which proved profitable. The emerging market equities theme also played out well for managers as developed market equities are increasingly starting to look relatively overpriced. Â

Multi-strategy, relative value and fixed income mandated hedge funds posted returns of 0.06%, 0.36% and 0.20% respectively for the month. Among volatility-focused strategies, long volatility hedge funds posted the steepest decline with losses of 1.21% while short volatility managers gained 0.42% for the month despite volatility levels as represented by the VIX Index gaining close to 7% in June. Relative value volatility hedge funds were also in positive territory for the month with0.36% growth.

On a year-to-date basis, equity long bias hedge funds lead with gains of 7.75%, followed by event driven and short volatility hedge funds up 5.77% and 5.25% respectively.

Table 1: Index Flash Strategy Return Map

Eurekahedge Strategy Indices June 20171 2017 Returns 2016 Returns
Eurekahedge Arbitrage Hedge Fund Index 0.57 2.65 4.80
Eurekahedge CTA/Managed Futures Hedge Fund Index -1.59 -1.95 1.51
Eurekahedge Distressed Debt Hedge Fund Index 0.00 3.74 13.22
Eurekahedge Event Driven Hedge Fund Index 0.54 5.77 10.57
Eurekahedge Fixed Income Hedge Fund Index 0.20 3.86 6.58
Eurekahedge Long Short Equities Hedge Fund Index 0.30 5.07 3.75
Eurekahedge Macro Hedge Fund Index -0.55 0.86 3.79
Eurekahedge Multi-Strategy Hedge Fund Index 0.06 4.41 4.92
Eurekahedge Relative Value Hedge Fund Index 0.36 2.57 7.33
CBOE Eurekahedge Long Volatility Hedge Fund Index -1.21 -6.55 -2.82
CBOE Eurekahedge Relative Value Volatility Hedge Fund Index -0.29 1.25 7.44
CBOE Eurekahedge Short Volatility Hedge Fund Index 0.42 5.25 5.09
CBOE Eurekahedge Tail Risk Hedge Fund Index -1.09 -8.71 -11.81
Eurekahedge Equity Long Bias Hedge Fund Index 0.56 7.75 5.28
Eurekahedge Equity Market Neutral Hedge Fund Index 0.60 1.31 -0.43
Eurekahedge Equity Short Bias Hedge Fund Index -2.89 -11.04 -7.35
Eurekahedge Trend Following Index -3.75 -4.69 -1.01
Eurekahedge FX Hedge Fund Index 0.55 1.99 0.91
Eurekahedge Commodity Hedge Fund Index 0.09 -1.77 7.00


Eurekahedge Global Hedge Fund Indices by Fund Size June 20171 2017 Returns 2016 Returns
Eurekahedge Small Hedge Fund Index (< US$100m) -0.10 3.03 4.84
Eurekahedge Medium Hedge Fund Index (US$100m - US$500m) -0.28 3.14 4.28
Eurekahedge Large Hedge Fund Index (> US$500m) -0.15 2.49 2.66
Eurekahedge Billion Dollar Hedge Fund Index -0.63 1.77 2.42


Mizuho-Eurekahedge Indices June 20171 2017 Returns 2016 Returns
Mizuho-Eurekahedge Index - USD 0.14 3.86 0.72
Mizuho-Eurekahedge TOP 100 Index - USD -0.11 2.57 0.25
Mizuho-Eurekahedge TOP 300 Index - USD 0.05 3.35 0.24


Asia-Eurekahedge Indices June 20171 2017 Returns 2016 Returns
Eurekahedge Greater China Hedge Fund Index 1.48 12.05 -4.58
Eurekahedge India Hedge Fund Index 0.05 14.61 3.19

1 Based on 38.15% of funds which have reported June 2017 returns as at 11 July 2017

Article by Eurekahedge