Yield Curve Inversion And Slowing Growth: North American Funds Ended 2018 With Their Worst Month Post-CrisisGuest Post
The Eurekahedge Hedge Fund Index was down 0.82%1 in December, outperforming the MSCI AC World Index (Local) which plummeted 7.61% in what turned out to be the worst month of 2018 for equities. The Federal Reserve continued to hike its funds rate in December and announced further tightening in 2019, triggering a sell-off in equity markets around the globe. Concerns over the US treasuries yield curve inversion eclipsed the optimism over the agreement made between Trump and Xi to postpone planned tariff increases, which opened a path for further negotiations. Over in Europe, the Italian government managed to strike a deal with the EU over its budgetary plans, resulting in the decline of the country’s sovereign bond yields. In contrast to the US Federal Reserve’s decision to raise rates, the ECB ended up holding their rates steady while confirming the end of their asset purchasing programmes. Preliminary data estimated that the Eurekahedge Hedge Fund Index has lost 3.35% throughout the year of 2018, contrary to how hedge fund managers were able to generate 8.50% return on average in 2017.
Roughly 38.6% of the underlying constituents in the Eurekahedge Hedge Fund Index ended December in positive territory, and around 6.9% of the hedge fund managers were able to maintain double-digit returns throughout 2018. The asset-weighted Mizuho-Eurekahedge Index (USD) ended the month flat, declining 0.02%, in contrast to the 0.82% loss posted by the equal-weighted Eurekahedge Hedge Fund Index. The Eurekahedge Small Hedge Fund Index which comprises fund managers overseeing no more than US$100 million in assets was down 1.06% during the month, while on the other hand, billion dollar hedge funds ended the month marginally down 0.06%.
Below are the key highlights for the month of December 2018:
- Hedge funds were down 0.82% in December, outperforming the MSCI AC World Index (Local) which declined 7.61% over the month. A vast majority of the hedge fund managers tracked by Eurekahedge outperformed the market index in December.
- On an asset-weighted basis, hedge funds lost 0.02% in December, bringing their year-to-date losses to 3.74%, as captured by the Mizuho Eurekahedge Hedge Fund Index (USD).
- North American fund managers lost 3.29% in December, as the underlying equity markets recorded their worst month of 2018. The S&P 500 index declined 9.18% in December. The Eurekahedge North America Long Short Equities Hedge Fund Index recorded a loss of 4.63% during the month.
- Over in Asia, concerns over slowing growth weighed on the region’s equity markets. The Eurekahedge Asia ex Japan Hedge Fund Index was down 2.82% throughout the month, bringing its year-to-date loss to 10.66%.
- The Eurekahedge European Hedge Fund Index slumped 0.90% in December, with the underlying long/short equities mandate down 1.81% as the region’s equity markets remained vulnerable to uncertainties surrounding Brexit negotiation and the end of ECB’s asset purchasing programme.
- Performance across strategic mandates was a mixed bag in December, with macro hedge funds leading the pack by gaining 1.56% over the month. On the other end of the spectrum, event driven hedge funds were down 2.78%.
- The Eurekahedge CTA/Managed Futures Hedge Fund Index gained 0.93% during the month despite weakness in the energy sector following the decline in oil prices. On a year-to-date basis, the index was down 3.17% and the mandate has suffered US$15.9 billion of performance-based losses and US$22.2 billion of net investor redemptions.
- Fund managers utilising AI/machine learning strategies were up 2.17% in December, after ending their streak of losses which placed them on track to record their worst year since the inception of the Eurekahedge AI Hedge Fund Index. Over the entire 2018, the index was still down 2.97%.
- The Eurekahedge Crypto-Currency Hedge Fund Index was down 8.74% in December, as Bitcoin price nearly touched the US$3,000 level in the middle of the month. The index has wiped 68.88% of its value throughout 2018. In comparison, the index soared 1,708.50% in 2017, supported by the rally in crypto-currency prices during the year.
MTD Performance Distribution by Geographic Mandate
MTD Performance Distribution by Strategic Mandate
Last 12 Months Performance Distribution by Monthly Returns
|Main Indices||Dec 20181||Last 3 Months||2018 Returns||2017 Returns||Annualised Returns||Constituents||Weighting|
|Eurekahedge Hedge Fund Index||-0.82||-3.54||-3.35||8.50||8.24%||2,501||Equal|
|Eurekahedge North American Hedge Fund Index||-3.29||-6.07||-2.96||8.26||8.94%||550||Equal|
|Eurekahedge Asia ex Japan Hedge Fund Index||-2.82||-5.97||-10.66||20.75||9.47%||170||Equal|
|Index of the Month||Dec 20181||Last 3 Months||2018 Returns||2017 Returns||Annualised Returns||Constituents||Weighting|
|Eurekahedge Greater China Hedge Fund Index||-2.97||-7.15||-14.62||29.97||13.33%||64||Equal|
|Eurekahedge Main Indices||Dec 20181||2018 Returns||2017 Returns|
|Eurekahedge Hedge Fund Index||-0.82||-3.35||8.50|
|Eurekahedge Fund of Funds Index||-0.89||-3.95||7.19|
|Eurekahedge Long-only Absolute Return Fund Index||-3.68||-11.04||20.37|
|Eurekahedge Islamic Fund Index||-1.78||-4.99||6.84|
North American fund managers ended the month down 3.29%, dragging their year-to-date losses to 2.96%. The region’s equity markets reacted adversely to the Fed’s rate hike during the month, and recorded their worst monthly performance in 2018. The S&P 500 index was down 9.18% following the equity sell-off, which was exacerbated by the weaker than expected earnings and reduced profit forecasts across the tech sector. The Dow declined 8.66% during the month, firmly placing December 2018 as the worst December for the index since the Great Depression.
Fund managers focusing on Asia ex-Japan lost 2.82% in December, weighed by the underlying equity market performance owing to weak macroeconomic data and China’s slowing economic growth. The Eurekahedge Japan Hedge Fund Index slumped 3.42% during the month, underperforming their peers from the other Asian regions. In comparison, the Nikkei 225 index and the TOPIX were down 10.33% and 10.40% respectively in December. European fund managers also ended the month in the red albeit to a lesser extent, with the Eurekahedge European Hedge Fund Index down 0.90%. Despite Italy’s success in reaching a budget deal with the European Union, investors remained concerned over the uncertainties surrounding Brexit negotiations.
|Eurekahedge Regional Indices||Dec 20181||2018 Returns||2017 Returns|
|Eurekahedge North American Hedge Fund Index||-3.29||-2.96||8.26|
|Eurekahedge European Hedge Fund Index||-0.90||-3.88||7.20|
|Eurekahedge Eastern Europe & Russia Hedge Fund Index||0.00||-8.45||10.78|
|Eurekahedge Japan Hedge Fund Index||-3.42||-9.18||12.91|
|Eurekahedge Emerging Markets Hedge Fund Index||-1.16||-5.59||16.96|
|Eurekahedge Asia ex Japan Hedge Fund Index||-2.82||-10.66||20.75|
|Eurekahedge Latin American Hedge Fund Index||-0.19||7.16||13.71|
Returns were mixed across strategic mandates in December, with macro fund managers leading the pack with their 1.56% gains. CTA/managed futures mandate followed behind with a 0.93% gain throughout the month, as fund managers successfully positioned themselves to benefit from the falling oil price and weak energy sector. On the other end, event driven, long short equities, and relative value mandates were down 2.78%, 2.62% and 2.55% respectively. The CBOE Eurekahedge Long Volatility Hedge Fund Index gained 7.11%, supported by the spike in market volatilities during the month. The CBOE VIX index jumped 39.68% throughout December.
Table 1: Index Flash Strategy Return Map
|Eurekahedge Strategy Indices||Dec 20181||2018 Returns||2017 Returns|
|Eurekahedge Arbitrage Hedge Fund Index||-0.03||0.37||5.27|
|Eurekahedge CTA/Managed Futures Hedge Fund Index||0.93||-3.17||2.26|
|Eurekahedge Distressed Debt Hedge Fund Index||-1.33||3.65||6.68|
|Eurekahedge Event Driven Hedge Fund Index||-2.78||-2.95||10.16|
|Eurekahedge Fixed Income Hedge Fund Index||-0.17||0.22||6.43|
|Eurekahedge Long Short Equities Hedge Fund Index||-2.62||-6.25||12.92|
|Eurekahedge Macro Hedge Fund Index||1.56||-0.97||4.21|
|Eurekahedge Multi-Strategy Hedge Fund Index||-1.36||-3.42||9.07|
|Eurekahedge Relative Value Hedge Fund Index||-2.55||-0.33||7.29|
|CBOE Eurekahedge Long Volatility Hedge Fund Index||7.11||2.40||-10.95|
|CBOE Eurekahedge Relative Value Volatility Hedge Fund Index||-5.00||-5.89||3.23|
|CBOE Eurekahedge Short Volatility Hedge Fund Index||-5.07||-12.71||9.06|
|CBOE Eurekahedge Tail Risk Hedge Fund Index||2.87||-4.15||-14.22|
|Eurekahedge Equity Long Bias Hedge Fund Index||-4.25||-8.74||17.00|
|Eurekahedge Equity Market Neutral Hedge Fund Index||-0.42||-2.18||3.85|
|Eurekahedge Trend Following Index||1.54||-6.50||0.34|
|Eurekahedge FX Hedge Fund Index||0.71||1.46||-0.19|
|Eurekahedge Commodity Hedge Fund Index||1.00||-4.28||1.27|
|Eurekahedge Crypto-Currency Hedge Fund Index||-8.74||-68.88||1708.50|
|Eurekahedge AI Hedge Fund Index||2.17||-2.97||8.70|
|Eurekahedge ILS Hedge Fund Index||n/a||-2.95||-5.60|
|Eurekahedge Global Hedge Fund Indices by Fund Size||Dec 20181||2018 Returns||2017 Returns|
|Eurekahedge Small Hedge Fund Index (< US$100m)||-1.06||-4.00||8.59|
|Eurekahedge Medium Hedge Fund Index (US$100m – US$500m)||-0.75||-2.76||8.22|
|Eurekahedge Large Hedge Fund Index (> US$500m)||0.23||-1.70||6.53|
|Eurekahedge Billion Dollar Hedge Fund Index||-0.06||-2.31||5.97|
|Mizuho-Eurekahedge Indices||Dec 20181||2018 Returns||2017 Returns|
|Mizuho-Eurekahedge Index – USD||-0.02||-3.74||8.69|
|Mizuho-Eurekahedge TOP 100 Index – USD||-0.14||-2.59||6.76|
|Mizuho-Eurekahedge TOP 300 Index – USD||0.19||-3.08||7.75|
|Asia-Eurekahedge Indices||Dec 20181||2018 Returns||2017 Returns|
|Eurekahedge Greater China Hedge Fund Index||-2.97||-14.62||29.97|
|Eurekahedge India Hedge Fund Index||1.41||-7.04||27.60|
1 Based on 21.47% of funds which have reported December 2018 returns as at 8 January 2019
Article by Eurekahedge