Hedge Weekly HSBC latest numbers have China focused hedge funds dominating the pack

Looking at the array of hedge fund strategies and their performance year to date tells a very different story than does the HFRI Fund Weighted Composite Index, which is up a rather dull 3.64% year to date while the Barclay Hedge Fund Index is up 4.33%, both basis June. In a fundamental market environment which started with the election and then inauguration of US President Donald Trump – and was filled with hopes of fiscal stimulus, tax cuts, and health care reform. The reality has turned out quite differently.

As Republican Congressional leaders threaten that firing US Attorney General Jeff Sessions or Special Counsel Robert Mueller without proper cause would lead to the “beginning of the end” of the Trump presidency and the start of a constitutional crisis, so much has changed. But this change is not reflected in the stock market, which has greeted the news with a yawn. In this market environment of faux tranquility, certain strategies are performing tremendously – they just are not necessarily focused in the traditional developed world.

Hedge Weekly HSBC
Hedge Weekly HSBC Results for top and bottom funds, as well as some select names – Chart by ValueWalk

Hedge Weekly HSBC – Chinese focused hedge funds with Long / Short strategy up big, which shouldn’t surprise anyone

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As the Chinese economy continues to ramp higher, thus far successfully beating their target 6.5% growth rate in 2017 by a small fraction, the top hedge funds on the HSBC Hedge Weekly performance ranking are both Chinese focused. But these funds are not the long-only variety.

What is perhaps most interesting are not the obvious plays, but the nuance found in various performance disparities. This can be seen in the outperformance of not just the top two hedge fund strategies – Quam China Focused Segregated Portfolio, up 31.92%, and Golden China Fund, up 29.90% -- but also in the top major category performer.

Hedge Weekly HSBC Long / Short Equity Diversified / Asia hedge fund category is up 21.27% year to date, significantly blowing past the L/S Equity Diversified average of 6.86%.

Debt hedge funds performing well

Looking beyond the surface, however, it becomes apparent that the category, while stating to represent “Asia,” is really more China focused. Six of the seven funds in the category have China in their name and four of these funds appear in the Hedge Weekly HSBC top 20 list. If there was a top 30 list, six of the seven funds in the Asia diversified category would make the list.

The performance of Long / Short hedge funds with an Asian focus should not be a surprise. ValueWalk has been chronicling the trend. Hedge fund observers note the relative value opportunity in the region is strong, particularly among some “A-share” names.

It is not just China that is a strong performer among hedge fund’s geographic focus. The Equity Long / Short Diversified Emerging Markets are up 11.13%, while the Japan category is up 7.52%. Similar Long / Short strategies in the UK, Europe, and the US are up 6.30%, 5.81% and 4.26% respectively while globally the strategy set is up 4.46%.

Many debt strategies are up nicely year to date. The HSBC Distressed Security/Global category is up 4.52% on the year, with the $6.4 billion Canyon Value Realization Fund leading the category, up 7.26% on the year. After delivering strong 2016 performance, up 25.41%, the Contrarian Capital Fund is up a more modest 1.37% on the year.

The Credit / Emerging category is up 5.61%, with large funds such as the $1.2 billion Contrarian Emerging Markets Offshore Fund up 7.92% year to date after delivering 22.74% to investors in 2016.

What’s working well in the US? Distresses Security/ USA category is up 6.94%, led by the $846 million JLP Credit Opportunity Fund. Among the most troubled funds are also focused here, with the Dorset Energy Fund down -40.77% on the year. Dorset is the second biggest loser in a hedge fund returns derby that is generally noted in part for its larger than average left tail returns year to date, with many quantitative and managed futures CTA strategies among the bottom 20 performers.