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CTAs And Macro Strategies Shine As Hedge Funds Continued Uptrend With 0.76% Gains

Hedge funds continued their uptrend and gained 0.76%1 in August, outperforming underlying markets as represented by the MSCI AC World Index (Local) which grew 0.15% during the month. Almost all hedge fund strategies ended the month in the green, with CTA/managed futures up 1.27% and macro hedge funds up 1.17% delivering the strongest gains. Across regional mandates, emerging markets focused hedge funds continue to post strong gains relative to their developed market peers contributed in part by the depreciating US dollar which is down almost 9.34%2 year-to-date.

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August was dominated by geopolitical tensions on the Korean peninsula as the risk of a nuclear showdown between North Korea and the US-led allies became more palpable. The event overshadowed US job gains posted earlier during the month, leading to a short-lived spike in volatility and sell off in equities. The Japanese yen, despite being on the frontline of North Korean aggression, maintained its safe haven status, and along with the Chinese renminbi posted gains against the US dollar. Fixed income markets saw declining yields in the flight for safe haven assets, with defensive comments from the central bank meeting at the Jackson Hole symposium doing little to lift market expectations. While the Korean crisis appears to be on track towards a calculated de-escalation, the Fed's balance sheet deleveraging will remain a more cumbersome undertaking and is likely be the main challenge to the market calm and risk appetite as we head into the year end.

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

  • Hedge funds gained 0.76% in August with underlying markets, as represented by the MSCI AC World Index (Local), up 0.15% over the same period. On a year-to-date basis, managers gained 5.16% while underlying markets were up 9.58%.
  • Managers running a long volatility mandate grew 0.54% following seven consecutive months of losses as the North Korean crisis brought volatility back to life, albeit quite briefly. On a year-to-date basis, long volatility hedge funds are down 7.46% while short volatility hedge funds have gained 6.85% for the year.
  • Among developed market mandates, Japanese hedge funds led on a year-to-date basis, up 6.37%, followed by Europe with growth of 4.85% and North America with 3.35%.
  • On a year-to-date basis, equity long bias hedge funds led with gains of 10.49%, followed by event driven up 7.08% and short volatility hedge funds up 6.85%.
  • Emerging market mandates continued to outshine their developed market peers, with India, Greater China and Asia ex-Japan hedge funds up 22.06%, 19.80% and 14.24% respectively. Latin America and Eastern Europe mandated funds are also up 13.50% and 11.00% for the year.
  • Distressed debt hedge fund managers were barely in the positive in August, up 0.03% and 4.38% year-to-date respectively, with losses coming from their exposure to high yield debt in the energy sector as oil prices declined following the closure of oil refineries in the US on the back of hurricane Harvey.

 

 

Main IndicesAugust 20171Last 3 Months2017 Returns2016 ReturnsAnnualised ReturnsConstituentsWeighting
Eurekahedge Hedge Fund Index0.761.825.164.578.87%2,841Equal
Eurekahedge 500.040.813.714.275.46%50Equal
Eurekahedge North American Hedge Fund Index0.100.993.357.859.46%657Equal
Eurekahedge European Hedge Fund Index0.460.624.850.107.25%303Equal
Index of the MonthAugust 20171Last 3 Months2017 Returns2016 ReturnsAnnualised ReturnsConstituentsWeighting
CBOE Short Volatility Hedge Fund Index0.911.966.855.098.86%15Equal

Main Indices

Eurekahedge Main IndicesAugust 201712017 Returns2016 Returns
Eurekahedge Hedge Fund Index0.765.164.57
Eurekahedge Fund of Funds Index0.634.27-0.06
Eurekahedge Long-only Absolute Return Fund Index1.6714.887.40
Eurekahedge Islamic Fund Index-0.254.824.14

Regional Indices

All regional mandates ended the month of August in the green, with Eastern Europe and Russia mandated hedge funds posting the strongest gains, up 5.06% during the month and 11.00% year-to-date as emerging markets continued their strong run in 2017. North American mandates posted the weakest gains in August, up 0.10%, with gains accruing from CTA/managed futures and macro strategies being offset by losses coming from equity focused strategies. In fact, developed market mandated hedge funds as a whole had a weak performance in August – European and Japanese mandates posted muted gains of 0.46% and 0.39% respectively as the North Korean crisis contributed to sell off in underlying equities, and in the case of the yen and the euro a strengthening relative to the US dollar. Emerging market hedge funds remained the beneficiary to this development, with Asia ex-Japan hedge funds up 1.65%, with underlying India and Greater China dedicated mandates up 2.00% and 1.96% respectively. Latin America focused hedge funds also posted strong gains, up 3.84%, as underlying Brazilian markets climbed higher with the IBovespa up 7.46% in August. Improving retail sales and industrial production data from Brazil, coupled with President Temer surviving a potential corruption trial contributed to strong gains for Brazilian equities.

On a year-to-date basis, Asia ex-Japan hedge fund managers topped the tables, and were up 14.24%, with underlying India dedicated and Greater China mandates up 22.06% and 19.80% respectively.

Eurekahedge Regional IndicesAugust 201712017 Returns2016 Returns
Eurekahedge North American Hedge Fund Index0.103.357.85
Eurekahedge European Hedge Fund Index0.464.850.10
Eurekahedge Eastern Europe & Russia Hedge Fund Index5.0611.0023.08
Eurekahedge Japan Hedge Fund Index0.396.371.72
Eurekahedge Emerging Markets Hedge Fund Index2.4813.257.18
Eurekahedge Asia ex Japan Hedge Fund Index1.6514.24-0.42
Eurekahedge Latin American Hedge Fund Index3.8413.5018.15

Strategy Indices

Performance was generally positive across the board for strategic mandates, with CTA/managed futures posting the strongest gains during the month, up 1.27% with underlying trend following funds gaining a stellar 2.67% while commodity focused hedge funds were up 1.26%. Managers reported strong gains from short positions in the US dollars versus the Japanese yen and the euro, while exposure to industrial and precious metals also buoyed gains for managers. Macro hedge funds also delivered strong returns in August, up 1.17% with gains coming from short positioning in developed market equities and exposure to fixed income instruments where yields pared back. Distressed debt hedge fund managers were barely in the positive in August with losses coming from their exposure to high yield debt in the energy sector as oil prices declined following the closure of oil refineries in the US on the back of hurricane Harvey. The Eurekahedge Distressed Debt Hedge Fund Index was up a flat 0.03% in August, 4.38% year-to-date. Meanwhile, the North Korean crisis dented equity returns with the SP500 Index ending the month flat while the NYSE Composite was down 0.77%, with volatility as captured by the CBOE VIX spiking briefly before settling lower. The Eurekahedge Long Short Equities Hedge Fund Index was up 0.67% in August, with Asia and Europe focused managers in the green with gains of 1.17% and 0.34% respectively, while North America focused managers were in the red down 0.03%. Managers running a long volatility mandate posted returns of 0.54% following seven consecutive months of losses as the North Korean crisis brought volatility back to life, albeit quite briefly. On a year-to-date basis, long volatility hedge funds are down 7.46% while short volatility hedge funds have gained 6.85% for the year.

On a year-to-date basis, equity long bias hedge funds led with gains of 10.49%, followed by event driven growing 7.08% and short volatility hedge funds up 6.85%.

Table 1: Index Flash Strategy Return Map

Hedge Funds

Eurekahedge Strategy IndicesAugust 201712017 Returns2016 Returns
Eurekahedge Arbitrage Hedge Fund Index-0.163.205.03
Eurekahedge CTA/Managed Futures Hedge Fund Index1.270.881.77
Eurekahedge Distressed Debt Hedge Fund Index0.034.3813.15
Eurekahedge Event Driven Hedge Fund Index0.607.0810.62
Eurekahedge Fixed Income Hedge Fund Index0.364.996.56
Eurekahedge Long Short Equities Hedge Fund Index0.677.323.72
Eurekahedge Macro Hedge Fund Index1.173.063.79
Eurekahedge Multi-Strategy Hedge Fund Index0.616.555.00
Eurekahedge Relative Value Hedge Fund Index0.063.477.19
CBOE Eurekahedge Long Volatility Hedge Fund Index0.54-7.46-2.82
CBOE Eurekahedge Relative Value Volatility Hedge Fund Index0.882.667.44
CBOE Eurekahedge Short Volatility Hedge Fund Index0.916.855.09
CBOE Eurekahedge Tail Risk Hedge Fund Index-1.49-11.23-11.81
Eurekahedge Equity Long Bias Hedge Fund Index0.6910.495.26
Eurekahedge Equity Market Neutral Hedge Fund Index0.571.93-0.45
Eurekahedge Equity Short Bias Hedge Fund Index0.28-9.72-7.35
Eurekahedge Trend Following Index2.67-0.42-1.01
Eurekahedge FX Hedge Fund Index0.050.660.91
Eurekahedge Commodity Hedge Fund Index1.260.916.98

 

Eurekahedge Global Hedge Fund Indices by Fund SizeAugust 201712017 Returns2016 Returns
Eurekahedge Small Hedge Fund Index (< US$100m)0.875.304.94
Eurekahedge Medium Hedge Fund Index (US$100m - US$500m)0.625.154.30
Eurekahedge Large Hedge Fund Index (> US$500m)0.684.122.68
Eurekahedge Billion Dollar Hedge Fund Index1.053.762.44

 

Mizuho-Eurekahedge IndicesAugust 201712017 Returns2016 Returns
Mizuho-Eurekahedge Index - USD0.716.130.72
Mizuho-Eurekahedge TOP 100 Index - USD0.634.200.25
Mizuho-Eurekahedge TOP 300 Index - USD0.715.410.24

 

Asia-Eurekahedge IndicesAugust 201712017 Returns2016 Returns
Eurekahedge Greater China Hedge Fund Index1.9619.80-4.58
Eurekahedge India Hedge Fund Index2.0022.063.85

1 Based on 42.03% of funds which have reported August 2017 returns as at 12 September 2017

2 US Dollar Index