Hedge Funds Up 1% With Strong Returns From The US

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Hedge funds gained 0.99% during the month of February. Meanwhile underlying markets as represented by the MSCI AC World Index (Local) gained 2.72% over the same period. February was marked by strong performance in US equities on the back of Trump’s fiscal and monetary policy announcements with the S&P 500 ending the month up 3.78%. Economic data out of the US also shed a positive light on the region with a pick-up in inflation bolstered by retail activity. Investor expectations of the rate hike by the Fed were also shaped by an increasingly hawkish Fed suggesting that the next rate hike could occur in the very near future. Among regional mandates. Latin American hedge funds managers gained 2.76% while among strategic mandates, distressed debt hedge funds topped the table and was up 1.34% followed by event driven hedge funds which gained 1.19% during the month. On a year-to-date basis, hedge funds are up 1.93%, with 11% of managers posting returns greater than 5% over the same period.

2016 Hedge Fund Letters

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

  • Hedge funds gained 0.99% in February with underlying markets, as represented by the MSCI AC World Index (Local) up 2.72% over the same period. On a year-to-date basis, managers gained 1.93% with 11% of them posting returns in excess of 5%.
  • Among developed mandates, North American hedge funds were up 0.77%, followed by European and Japanese counterparts which gained 0.46% and 0.30% for the month respectively. On a year-to-date basis, North American managers were up 1.78% followed by Japanese and European managers who posted gains of 1.57% and 1.09% respectively.
  • All strategic mandates were up in February with distressed debt hedge funds posting the best returns, gaining 1.34%, followed by event driven long/short equities hedge funds which were up 1.19%% and 1.16% respectively.
  • Emerging market mandates were up 1.79% for the month with strength led by underlying Latin America and Asia ex-Japan mandates. Frontier markets as represented by the Eurekahedge Frontier Markets Hedge Fund Index was up 1.00% for the month.
  • The Eurekahedge Long Short Equities Hedge Fund Index gained 1.16% during the month with strength led by underlying equity long-bias hedge funds which gained 2.11% over the same period.
  • Asia ex-Japan mandated hedge funds gained 1.42% during the month with underlying Greater China and India hedge fund managers up 2.77% and 2.86% over the same period respectively. On a year-to-date basis, Greater China and India mandated hedge funds posted impressive gains, up 5.52% and 6.64.
  • Among volatility-focused hedge funds, short volatility hedge funds topped the table for February, gaining 0.57% while long-volatility hedge funds posted the steepest decline, down 0.88%. As of 2017 year-to-date, short volatility hedge funds gained 2.04% while tail risk hedge funds were down 2.96%.

Hedge Funds – Main Indices

Hedge Funds

Regional Indices

All regional mandates were up in February, with Latin American hedge fund managers topping the list, gaining 2.76% during the month. Global equities performed well in general with US equities leading much of the strength. Emerging markets and Asia ex-Japan managers gained 1.79% and 1.42% over the same period, with underlying Greater China and Indian hedge fund managers gaining 2.77% and 2.86% respectively. North American hedge funds were up 0.77%, backed by the strong performance of US equities during the month. Despite the political instability in the European region, European hedge fund managers posted modest gains of 0.46% with the DAX and CAC Index up 2.63% and 2.31% respectively. Japan managers were up a modest 0.30% following a late month sell-off in the Japanese equity markets from concerns of a stronger Yen. The Nikkei 225 Index ended the month with slight gains of 0.41%.

On a year-to-date basis, Latin American hedge fund managers were up 6.57% followed by emerging markets and Asia ex-Japan managers with gains of 4.44% and 3.54% respectively. The performance of Asia ex-Japan hedge funds were backed by strong performance of underlying Greater China and Indian managers who were up 5.52% and 6.64% over the same period.

Hedge Funds

Strategy Indices

Performance across strategic mandates were positive in February, with distressed debt hedge fund managers posting the best gains up 1.34%. Performance of the high yield market was supported by a number of key factors mainly Trump’s address on fiscal and monetary stimulus, encouraging US macro data, a pick-up in inflation figures as well as corporate earnings data. The BoFA US High Yield Index was up 1.56% during the month. Event driven managers gained 1.19% in February followed by their long/short equities counterparts which gained 1.16% over the same period. Following Trump’s announcement of fiscal and tax stimulus, US equities gained strength with the DJIA breaking past the 20,000 mark at the end of the month. Global equities also rode on this wave, supporting managers’ long-book trades in February. Multi-strategy and CTA/managed futures hedge fund managers posted gains of 1.06% each with exposure into underlying equities and equity indices among contributors to performance. On the FX front, gains were realised from long exposure into the USD versus other major currencies. The optimism from Trump’s fiscal and tax stimulus, inflation figures and a hawkish Fed lend some support to the USD during the month. The ongoing political developments in the Euro area also resulted in gains for managers short on the Euro. Among underlying sub-strategies within the CTA/managed futures mandate, trend-following hedge fund managers posted an impressive gain of 2.56%, followed by commodity and FX focused managers with gains of 0.72% and 0.18% respectively.

Fixed income mandated hedge funds posted gains of 0.88% during the month, with gains realised from long exposure into Germany and UK fixed income instruments. Growing political instability in the European region and concerns over French elections have resulted in investors fleeing into German sovereign debt. While yet to trigger Article 50, the UK is not entirely isolated from the developments of its European neighbors with investors increasing their demand in the Gilts as part of safe haven asset holdings. Indeed, movements within the fixed income space were backed by investor concerns amidst evolving European politics. Macro and arbitrage hedge fund managers posted modest gains during the month, gaining 0.48% and 0.39% respectively. Relative value mandated hedge funds were up 0.37% with support by underlying short volatility hedge fund managers. This is represented by the CBOE Eurekahedge Short Volatility Hedge Fund Index, which gained 0.57% during the month.

On a year-to-date basis, event driven and distressed debt hedge fund managers were up 3.27% and 2.88% respectively. This is followed by long/short equities and multi-strategy hedge fund managers who posted gains of 2.84% and 2.30% respectively. Fixed income, relative value and arbitrage mandates gained 1.80%, 1.55% and 0.73% over the same year-to-date period. Macro and CTA/managed futures hedge funds were also up year-to-date, a modest 0.50% and 0.40% respectively.

Looking at the full list of Eurekahedge Strategy Indices in Table 1 below, equity long-bias and event driven managers feature strongly on a 2017 year-to-date basis, with gains of 4.42% and 3.27% respectively while at the other end of the spectrum, tail risk volatility and equity short-bias managers posted the steepest year-to-date losses, down 2.96% and 3.31% respectively.

Table 1: Index Flash Strategy Return Map

Hedge Funds

Hedge Funds

Hedge Funds

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1 Based on 56.99% of funds which have reported February 2017 returns as at 14 March 2017

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