Hedge Fund Managers Up 2.3% In January After 4.1% Loss In 2018: Eurekahedge – ValueWalk Premium
Hedge Fund Managers

Hedge Fund Managers Up 2.3% In January After 4.1% Loss In 2018: Eurekahedge

Key highlights for January 2019:

Q4 hedge fund letters, conference, scoops etc

  • The Eurekahedge Hedge Fund Index was up 2.32% in January, as the risk-on sentiment returned to the market, propelling the MSCI AC World Index (Local) up 7.36% during January. Throughout 2018, hedge fund managers posted losses of 4.08%, outperforming the global equity market which slumped 10.18% over the year.
  • The global hedge fund industry saw its assets decline US$154.4 billion throughout 2018, down 6.3% from its end-2017 figure – the largest yearly percentage drop since 2008, as fund managers struggled under the global trade tension and aggressive Fed rate hikes which caused elevated market volatility level through the better part of the year. Investors redeemed US$93.4 billion during the year, and US$61.0 billion of performance losses were recorded.
  • The long/short equities mandate suffered US$23.1 billion of performance losses and US$40.0 billion of net investor outflows in 2018, resulting in a 7.3% decline in total assets over the year. Fund managers utilising equity strategies kicked off 2019 with performance gains totalling US$23.1 billion in January. Despite that, investor redemptions of US$1.8 billion were recorded.
  • North American hedge fund managers recorded US$38.8 billion of performance-based losses, as well as US$46.0 billion of investor outflows in 2018, resulting in the biggest yearly decline in assets under management since the 2008 global financial crisis, during which the region’s asset base saw a US$214.4 billion decline.
  • Fund managers utilising AI/machine learning strategies returned 2.48% in January, after posting losses in eight out of the 12 months last year. Quant strategies continued their struggle with the CTA/managed futures mandate seeing US$29.0 billion of net outflows in 2018.
  • Returns across the CBOE Eurekahedge Volatility Indexes were mixed in January, with long volatility mandate down 5.28% and short volatility mandate up 4.02% as market volatilities dwindled throughout the month. The CBOE VIX Index plummeted 34.35% in January as the risk-off sentiment among investors eased off.
  • The Eurekahedge ILS Advisers Index was up 0.50% in January, ending its streak of losses through the final quarter of 2018 which resulted from catastrophic losses incurred by the 2018 Atlantic hurricane season. ILS fund managers posted losses of 5.60% and 3.57% in 2017 and 2018 respectively.
  • The Eurekahedge Crypto-Currency Hedge Fund Index declined 9.07% in January, narrowly outperforming Bitcoin which slumped 10.98% over the month. Crypto-currency hedge fund managers lost 71.86% throughout 2018, posting their worst year on record.
  • Funds of hedge funds ended 2018 down 4.58%, trailing behind the average hedge fund which would have lost 4.08% throughout the year. The fund of hedge funds industry saw investor redemptions totalling US$14.6 billion last year.

2019 Key Trends in UCITS Hedge Funds

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The Eurekahedge Hedge Fund Index kicked off the year with a solid showing, as it gained 2.32% in January, in contrast to how the index declined 4.08% last year, following five consecutive months of losses. Dovish stance exhibited by the Federal Reserve signalled higher level of flexibility in future rate changes, and together with greater optimism over trade talk progresses between the United States and China they supported the global equity market performance throughout the month. The MSCI AC World Index (Local) gained 7.36% during January, despite the economic slowdown concerns revolving around China, as indicated by the contraction in manufacturing sector and dwindling exports. Improving outlook over global trade and weaker US dollar supported the performance of fund managers focusing on Asia and emerging markets during the month, with the Eurekahedge Asian Hedge Fund Index and Eurekahedge Emerging Markets Hedge Fund Index edging 2.00% and 4.40% higher respectively.

Preliminary figures showed that 73.8% of the hedge fund managers tracked by Eurekahedge posted positive returns in January, as opposed to how barely 35.5% of these managers avoided losing money in December last year. Managers utilising event driven and long/short equities strategies were best positioned to benefit from the upward movement in both equity and bond markets during the month. The two strategic mandates were up 4.35% and 3.77% respectively over the month, while on the other end of the spectrum CTA/managed futures hedge funds were down 0.39% despite the strong recovery seen in energy and industrial metal sectors.

All major geographic mandates posted positive returns in January, with North American hedge fund managers up 3.79%, as the underlying equity markets recovered from the losses they suffered back in December. The Eurekahedge Japan Hedge Fund Index and the Eurekahedge Asia ex Japan Hedge Fund Index were up 1.65% and 2.50% respectively, as the region’s equity markets rallied on the Fed’s dovish tone and hopes over the US-China trade talks.

January 2019 and December 2018 returns across regions

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Looking at returns throughout 2018, Japan and Asia ex-Japan mandates suffered the steepest losses thanks to the tariff spat between the US and China and the Fed’s aggressive rate hikes. The two mandates were down 9.57% and 9.56% respectively in 2018. Despite the robust performance of North American fund managers over the second and third quarters of the year, the mandate still ended the year down 2.92% as the equity market sell-offs in October and December wiped a significant portion of the managers’ return over the preceding months.

2018 year-to-date returns across regions

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Mizuho-Eurekahedge Asset Weighted Index

The asset-weighted Mizuho-Eurekahedge Index – USD gained 1.39% in January, after ending 2018 down 4.23%. It should also be noted that the Mizuho-Eurekahedge Index is US dollar denominated, and during months of strong US dollar gains, the index results include the currency conversion loss for funds that are denominated in other currencies.

All of the Mizuho-Eurekahedge indices posted positive returns in January, with the Mizuho-Eurekahedge Long Short Equities Index gaining 3.35% over the month, riding the upward movement of the equity markets around the globe as they recovered from the December sell-off. All of the Mizuho-Eurekahedge indices were in the red over 2018, with the Asia Pacific and long/short equities fund managers posting the sharpest declines as they ended the year down 7.82% and 6.98% respectively.

Mizuho-Eurekahedge Indices

January 2019 returns

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Mizuho-Eurekahedge Indices

2018 year-to-date returns

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CBOE Eurekahedge Volatility Indexes

The CBOE Eurekahedge Volatility Indexes comprise four equally-weighted volatility indices – long volatility, short volatility, relative value and tail risk. The CBOE Eurekahedge Long Volatility Index is designed to track the performance of underlying hedge fund managers who take a net long view on implied volatility with a goal of positive absolute return. In contrast, the CBOE Eurekahedge Short Volatility Index tracks the performance of underlying hedge fund managers who take a net short view on implied volatility with a goal of positive absolute return. This strategy often involves the selling of options to take advantage of the discrepancies in current implied volatility versus expectations of subsequent implied or realised volatility. The CBOE Eurekahedge Relative Value Volatility Index on the other hand measures the performance of underlying hedge fund managers that trade relative value or opportunistic volatility strategies. Managers utilising this strategy can pursue long, short or neutral views on volatility with a goal of positive absolute return. Meanwhile, the CBOE Eurekahedge Tail Risk Index tracks the performance of underlying hedge fund managers that specifically seek to achieve capital appreciation during periods of extreme market stress.

The CBOE Eurekahedge Short Volatility Hedge Fund Index ended the month up 4.02%, as market volatility remained suppressed throughout the month thanks to the Fed’s cautious tone and the US-China trade talk optimism. Conversely, fund managers utilising long volatility strategies ended up losing 5.28% throughout the month. Looking at 2018 performance, long volatility mandate was up 0.83% during the year, while on the other end of the spectrum short volatility mandate posted an average loss of 13.01% thanks to the heightened market volatility throughout the year.

CBOE Eurekahedge Volatility Indexes

January 2019 returns

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CBOE Eurekahedge Volatility Indexes

2018 year-to-date returns

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Summary monthly asset flow data since January 2013

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Eurekahedge

Launched in 2001, Eurekahedge has a proven track record spanning over 16 years as the world’s largest independent data provider and alternative research firm specialising in global hedge fund databases and research. Headquartered in Singapore with offices in New York and Philippines, the global expertise of our research team constantly adapts to industry changes and needs, allowing Eurekahedge to develop and offer a wide array of products and services coveted by institutional investors, family offices, accredited investors, qualified purchasers, financial institutions and media sources. In addition to market-leading hedge fund databases, Eurekahedge’s other business functions include hedge fund research publications, due diligence services, investor services, analytical platforms and risk management tools.

Article by Eurekahedge


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