Hedge Fund Industry Positive for 12th Consecutive Month

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Good news from hedge fund returns was mostly widespread in October. Most major strategies were positive during the month with distressed and FX being the main exceptions. A very strong month for managed futures and macro strategies meant the two went from industry laggards for most of 2017, to leaders in the month of October. And there is a new leading primary strategy for 2017, as long/short equity gains in October outpaced activists’ by just enough to claim the top spot.

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The industry is on pace for its best year of aggregate returns since 2013, and with just about 80% of all reporting funds in the black, with average gains above +11.5%, 2017 may likely be called a good year for the recently oft beleaguered industry.


  • Hedge funds returned an average of +1.22% in October, and are +7.18% YTD in 2017.
  • 80% of the industry is positive in 2017, and average gains from those in the black are near 12%.
  • Managed futures had one of their best months ever in October.
  • Long/short equity overtook activists as the leading primary strategy in 2017.

Industry Positive for 12th Consecutive Month, All Strategies (ex-Commodities/FX) Now Positive Year-to-Date

Hedge funds returned an average of +1.22% in October 2017, the industry’s largest monthly average gain
since July 2106. Last-twelve-month returns are now +8.93%, and YTD the industry is +7.17%, and on pace
for its best year since 2013.

Key Points

  • Managed futures funds had one of their best months ever in October.
    One could count on one hand the number of months in the last ten years that bested managed futures’ October 2017 average return. The increase lifted the group into the black YTD, and many of the universe’s largest managers were among the leaders. To say the strategy needed a boost is an understatement. For some of the largest managers, it turned a flat year firmly positive, or rescued what was on pace to be an annual loss. Whether it will shift investor sentiment back to positive will be difficult given the volatility of returns across an extended period of time.
  • Large macro funds had their best month of 2017 in October.
    Most larger macro funds ended 2016 with a string of gains, which makes October 2017’s returns, while still elevated, only the universe’s best of this year, and not a much longer stretch of time. Similar to managed futures, the average macro fund gain for the year is a near mirror of the average loss, however nearly 70% of macro funds are up for the year versus only 60% of managed futures funds.
  • Long/short equity has overtaken activists as the best major strategy of 2017.
    Relatively steady gains throughout the year, actually since October 2016, have pushed the strategy to the top of the industry in 2017. No other major strategy has a higher proportion of funds in the black this year (91%), and no other has as high an average gain (+13.7%). With investor sentiment shifting firmly positive in Q2, 2017 has shaped up to be a good year for the long/short equity funds.
  • Commodity returns hurt by negative outliers.
    On the surface, commodity fund performance looks exceedingly negative in 2017, however more than half of reporting funds are in the black this year (52%), though the average loss does outweigh the average gain.

EM Underperformance of DM Extends to a Second Consecutive Month

Emerging market strategies had outperformed developed market strategies by at least 2x for eight
consecutive months before September. Losses from India in September and Brazil/Russia in October have
put a halt to that trend.

Hedge Funds

Primary Regional Exposure

  • Brazil was a rare drag on EM returns in October.
    Since the beginning of 2016, Brazil funds have led all other major EM exposures nearly twice as often as they have lagged all other major EM exposures. October’s losses from Brazil exposure was elevated, but still well within the realm of a typical monthly drawdown for the group.
  • China hedge funds leading the industry in 2017.
    With another large gain in October, China funds were able to maintain their lead over India-focused funds as the largest gainers in the industry this year.

Firm Domicile

  • Every Asia ex-Japan firm domicile is outperforming the aggregate of the hedge fund industry in 2017.
    While this is not terribly surprising given the regional exposure bias of products offered from the group, the Asia EM bias is not as large as one might expect. Roughly half of Asia-ex Japan domiciled funds report a primarily EM focus, while 40% are developed market-focused strategies. The remainder are products for which regional bias is either not significant, or there is a mixed bias (managed futures, global DM & EM)

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