Hedge Funds Flat In August, Up 2.50% Year-To-Date

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Hedge Funds Flat In August, Up 2.50% Year-To-Date by Eurekahedge

Hedge funds were flat to marginally negative at 0.06% during the month of August1 with much of this weakness led by underlying CTA/managed futures and macro mandated hedge funds. On the other hand, underlying markets as represented by the MSCI World Index (Local) were up 0.48%. Close to 60% of the underlying constituent hedge funds for the Eurekahedge Hedge Fund Index were in positive territory this month, with majority of them being long/short equity mandated. Asia ex-Japan hedge funds led performance among regional mandates this month, up 1.24% while distressed debt managers topped the table across strategies, gaining 1.77% over the same period.

As of 2016 year-to-date, close to 60% of managers were in positive territory with roughly 14% of these managers posting year-to-date returns in excess of 10% over the past eight months. Close to 40% of these managers are long/short equity mandated while another 20% are CTA/managed futures mandated hedge funds.

Hedge Funds – Below are the key highlights for the month of August 2016:

  • Hedge funds declined a marginal 0.06% during the month, and are up 2.50% year-to-date. Preliminary data shows investors redeemed a further US$2.0 billion from the industry in August, which brings total 3-month outflows to US$23.6 billion.
  • Among developed mandates, European hedge fund managers were up 0.55%, followed by North American managers who were up 0.54% while Japanese managers were down 0.13% during the month. On a year-to-date basis, North American hedge fund managers were up 4.52% while their European and Japanese counterparts were in the red – down 1.08% and 3.73% respectively.
  • The Eurekahedge Distressed Debt Hedge Fund Index posted the best returns among strategic mandates in August and was up 1.77% during the month. Managers also posted impressive year-to-date gains, up 7.86% – the best year-to-date returns for the strategy since 2013.
  • Long/short equities hedge funds were up 0.54% in August with equity long bias hedge funds posting an impressive 1.32% gain, boosted by the well-performing global equity markets during the month. Latin American long/short equities hedge funds posted the best year-to-date gains, up 18.96% while Japanese long/short equities hedge funds fared the worst, down 3.66% over the year.
  • Asia ex-Japan hedge funds posted the best returns among regional mandates this month, up 1.24% with strength led by underlying Greater China mandated hedge funds which were up 2.20% in August.
  • CTA/managed futures hedge funds posted the steepest decline in August, down 2.15% with underlying trend following funds down 3.18%, commodity dedicated funds down 1.78% and FX funds down 0.66% during the month.

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Main Indices

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Regional Indices

Asia ex-Japan managers posted the best returns among regional mandates in August, up 1.24% as most Asian markets ended the month higher, propping up the performance of managers in the region. Greater China mandated hedge funds, a heavyweight of the index, gained 2.20% during the month. Chinese markets were up overall with the CSI 300 Index gaining 3.87% during the month, led by the performance of financial stocks as the developments surrounding the ‘Stock Connect’ and better-than-expected earnings report of Chinese names led to some investor optimism. Latin American equity market performance were also up this month with the Ibovespa ending the month up 1.03%. Performance among developed market mandates were mixed during the month, with European hedge fund managers up 0.55%, followed by North American managers posting gains of 0.54%. On the other hand, Japanese managers languished into negative territory during the month, down 0.13%, led by weakness from Japanese long/short equity managers.

On a year-to-date basis, Latin American hedge fund managers led the table, gaining 15.79% over the past eight months. Developments over Dilma Rousseff’s impeachment have had a positive effect on the Latin American market, leading the Ibovespa up 33.57% over the past eight months alone. Furthermore, the overall weakness of the US dollar had also propped up the performance of the underlying Latin American commodities sector over the past eight months. Among developed mandates, North American hedge funds were up 4.52% year-to-date, followed by Asia ex-Japan managers who were up 1.52% over the same period. On the other hand, European and Japanese hedge fund managers were down in negative territory, declining 1.08% and 3.73% respectively over the past eight months.

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Strategy Indices

Performance was mixed across strategic mandates, with distressed debt managers leading the table, gaining 1.77% during the month. This is followed by event driven managers who posted gains of 1.67% over the same period on the back of improving risk appetite. Relative value and fixed income managers were also up in August, gaining 0.94% and 0.73% respectively. Long/short equities hedge funds grew 0.54% with underlying long bias hedge funds leading much of this strength (+1.32%) as global equities markets ended the month higher.

On the other hand, CTA/managed futures managers were down 2.15% during the month, with underlying commodity-focused hedge funds as represented by the Eurekahedge Commodity Hedge Fund Index declining 1.78%. Trend-following hedge funds, also a subset of the broad CTA index lost 3.18% over the same period. Macro mandated hedge funds were also in negative territory during the month, down 0.40%.

Broadly speaking, CTA/managed futures and macro mandated hedge funds led much of the overall weakness in hedge funds this month as they were the hardest hit due to signals from Fed members leading to difficult trading conditions. The strengthening of the dollar towards the end of the month also affected manager’s position into precious metals, with long positions into gold a performance detractor for managers as anticipation on the Fed rate hike builds up. This led to investors unwinding their bets on precious metals and also US sovereign bonds, with yields on both the 90 day and 10 year Treasury bills ending the month higher. Short positions within the energy sector also led to losses as developments from the OPEC meeting led to the jump in oil prices. That being said, a concrete plan has yet to be communicated among OPEC members. As of current time, potential inventory disruptions as a result of Hurricane Hermine within the North American oil space is adding to some respite in an otherwise oversupplied oil market. On the FX front, Eurekahedge FX Hedge Fund Index was down 0.66% during the month, as managers were caught in the USD reversal late into the month, giving back the gains made from shorting the dollar. Among short term programs, going into long USD/JPY towards month-end did cushion the impact of the reversal to some extent, but this was not sufficient to recoup losses made during the reversal.

Distressed debt hedge funds lead the table in terms of 2016 year-to-date performance, gaining 7.86% as the recovery in oil and commodity prices indicate that troubled assets purchased over the past year have started to post gains. Event driven and relative value hedge funds were also up year-to-date, gaining 6.69% and 5.92% respectively over the same period as the current market uncertainty presents ample opportunities for managers to take advantage of price dislocations in underlying assets.

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1 Based on 36.15% of funds which have reported August 2016 returns as at 13 September 2016

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