Key highlights for July 2017:
- Baupost Letter Points To Concern Over Risk Parity, Systematic Strategies During Crisis
- AI Hedge Fund Robots Beating Their Human Masters
- Hedge funds were up 0.88% in July with 2017 year-to-date gains coming in at 4.27%, roughly 73% of fund managers are in positive territory year-to-date while almost 15% have posted double digit gains.
- Total hedge fund assets grew by US$108.6 billion over the past seven months with US$71.6 billion attributed to investor inflows while managers posted performance-based gains of US$37.0 billion with the industry's total assets currently standing at US$2.33 trillion.
- AUM for the North American hedge fund industry has reached a record high of US$1.56 trillion. Investor allocations for 2017 year-to-date stood at US$46.5 billion, while US$19.1 billion of performance-based gains were recorded over the same period of time.
- Smaller funds managing assets in the range of US$100 to US$500 million have raised almost US$22 billion this year, while the billion dollar club has accounted for US$44 billion in inflows as investor appetite for hedge funds continues to improve.
- The US$151.5 billion arbitrage mandated hedge fund industry saw the highest net investor inflows of US$13.0 billion among strategic mandates for 2017 year-to-date. Managers posted performance-based gains as of 2017 year-to-date totalling US$3.8 billion.
- As of July 2017 year-to-date, Asian funds have recorded a growth in AUM of US$10.3 billion, with US$6.6 billion accounted for by performance-based gains while the remainder, roughly US$3.6 billion has come through net investor allocations. Asia ex-Japan managers are up 12.57% for the year – leading the table among strategic mandates with underlying Greater China and Indian managers up 18.43% and 19.31% year-to-date respectively. Japan focused funds are up 5.71% over the same period.
2017 Key Trends in Global Hedge Funds
Hedge funds extended their gains for the year and were up 0.88% during the month of July based on preliminary numbers. Meanwhile, underlying markets, as represented by the MSCI AC World Index (Local), were up 1.64% over the same period. Returns were largely positive across the board with all key regional mandates in the green as emerging market mandates (excluding Eastern Europe & Russia) delivering the best returns. The US economy continues to march along at a steady pace, with a weakening USD and the gain in oil prices spurring inflation expectations and making a stronger case for a Fed rate hike later this year. However, the political deadlock in Congress; where President Trump still appears to have his hands tied to push through with his reform agenda (the recent sanctions against Russia which Trump approved quite begrudgingly being a recent case in point); as well as the upcoming fiscal debt ceiling are likely to force the Fed to pursue its rate hike more cautiously in the second half of 2017. Over in Europe, the growth momentum appears to be going strong with a strengthening Euro adding to gains for foreign investors in the region. Emerging markets (EM) led by India, China and Brazil have also contributed to strong gains for hedge fund managers as global risk appetite remains strong with a weakening USD favouring exposure to EM markets where valuations remain relatively cheap.
All regional mandates ended the month of July in the green, with Latin America mandated hedge funds posting the strongest gains, up 3.68% during the month as emerging markets continue their strong run in 2017, while long/short equities managers led gains across strategic mandates, up 1.15% over the same period. On a year-to-date basis, the Eurekahedge Hedge Fund Index was up 4.27% as hedge funds look all set to beat their returns from the previous year.
July 2017 and June 2017 returns across regions
All regional mandates were up in July with Latin American managers a clear lead among peers, up 3.68%, followed by Asia ex-Japan managers who were up 2.45% over the same period - their seventh consecutive month of gains. Japanese managers were up 0.76%, followed by North American and European managers who posted gains of 0.72% and 0.15% respectively. On a year-to-date basis, Asia ex-Japan managers led the tables once again, up 12.57% followed by Latin American and Japanese managers, with 10.49% and 5.71% respectively. European and North American managers also posted positive returns with gained of 4.08% and 3.41% respectively year-to-date.
2017 year-to-date returns across regions
Mizuho-Eurekahedge Asset Weighted Index
The asset weighted Mizuho-Eurekahedge Index gained 1.57% in July. 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 2.91% in July.
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 4.08% during the month. This is followed by the Mizuho-Eurekahedge Asia Pacific Index and the Mizuho-Eurekahedge Long/Short Equities Index whichposted gains of 3.07% and 2.62% respectively. The Mizuho- Eurekahedge Multi-Strategy Index was up 1.52% followed by the Mizuho-Eurekahedge Top 100 Index which was up 1.09% over the same period.As at 2017 year-to-date, the Mizuho-Eurekahedge Asia Pacific Index led the tables up 11.05% followed by Mizuho-Eurekahedge Long/Short Equities Index with gains of 9.73%. Mizuho-Emerging Markets Index was also up 8.55% year-to-date followed by the Mizuho-Eurekahedge Multi-Strategy Index and the Mizuho-Eurekahedge Top 100 Index which were up 5.03% and 3.43% respectively over the same year-to-date period.
Mizuho-Eurekahedge Indices July 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 July, the CBOE Eurekahedge Short Volatility Hedge Fund Index led the tables with gains of 0.77%, followed by the CBOE Eurekahedge Relative Value Volatility Hedge Fund Index which was up 0.30% as volatility levels, represented by the CBOE VIX declined towards the end of the month. The VIX fell 8.23% during the month. On the opposite side, the CBOE Eurekahedge Long Volatility Hedge Fund Index fell sharply during the month, down 1.37%, followed by the CBOE Eurekahedge Tail Risk Hedge Fund Index which fell 0.58% over the same period. 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.
On a year-to-date basis, the CBOE Eurekahedge Short Volatility Hedge Fund Index posted the best gains, up 6.07% followed by the CBOE Eurekahedge Relative Value Volatility Hedge Fund Index which was up 1.92%. On the other hand, the CBOE Eurekahedge Tail Risk Hedge Fund Index posted the steepest declined, down 8.98% followed by the CBOE Eurekahedge Long Volatility Hedge Fund Index with a decline of 7.69% over the same year-to-date period.
CBOE Eurekahedge Volatility Indexes July 2017 returns
CBOE Eurekahedge Volatility Indexes 2017 year-to-date returns
Summary monthly asset flow data since January 2012
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