US-China Trade Tension

Hedge Fund Managers Posted Minor Losses Amidst Re-Escalating US-China Trade Tension

The Eurekahedge Hedge Fund Index slumped 0.63%1 in May as hedge fund managers struggled to generate returns during the risk-off month. The Trump administration’s decision to raise tariffs on US$200 billion of Chinese imports signalled the escalation of the trade conflict between the US and China, leading to retaliatory tariffs from the other side. The worsening global economic outlook pushed global equities into the red for the month, as indicated by the 6.12% decline posted by the MSCI ACWI (Local). On the other hand, the US 10-year treasury yield dipped to its lowest point in almost two years, as investors expect that the Fed will have to cut interest rates in near future. Returns were mostly negative across geographic mandates in May, with Asia ex-Japan fund managers down 1.44%, and North American fund managers down 1.17%. Across strategies, managers utilising equity long-bias and trend following strategies suffered the biggest losses, as the two mandates were down 3.05% and 2.62% respectively.

Q1 hedge fund letters, conference, scoops etc

Roughly 42.3% of the underlying constituents of the Eurekahedge Hedge Fund Index posted positive returns in May, and 13.9% of the hedge fund managers in the database managed to maintain double-digit returns over the first five months of 2019. Looking at year-to-date performance, fund managers utilising equity long-bias strategies maintained their place at the top with 7.84% gain, despite the losses they suffered this month.

Below are the key highlights for the month of May 2019:

  • Hedge fund managers lost 0.63% in May, dragging their year-to-date return to 4.41% as global equity markets slumped under worsening economic outlook during the month. The MSCI ACWI (Local) was down 6.12% in May but still up 8.52% for the year.
  • On an asset-weighted basis, hedge funds were down 1.14% in May, as captured by the Mizuho Eurekahedge Hedge Fund Index (USD). The index was up 2.24% year-to-date after registering a loss of 4.30% throughout 2018.
  • The Eurekahedge North American Hedge Fund Index retreated 1.17% during the month, as the return of the US-China trade tension weighed on fund managers’ performance.
  • The Eurekahedge Greater China Hedge Fund Index slumped 6.25% in May, wiping out a significant portion of the returns they have generated over the first four months of the year. The index was up 5.43% as of May 2019 year-to-date. The region’s hedge fund industry saw US$0.9 billion of net investor allocations in 2018, despite the double-digit losses posted by fund managers during the year.
  • The Eurekahedge CTA/Managed Futures Hedge Fund Index was down 0.44% in May, reducing its year-to-date return to 2.27%. Weakness in energy sector and industrial metals posed as headwinds for fund managers within the mandate, while on the other hand precious metals registered gains as the equity market volatility boosted demand for gold during the month.
  • Fund managers utilising AI/machine learning strategies ended May down 2.21%, registering their first monthly loss in 2019. On a year-to-date basis the index was still up 1.35%.
  • The Eurekahedge Crypto-Currency Hedge Fund Index rallied 29.02% in May, boosted by the rally in crypto assets which saw Bitcoin breaching the US$8,000 level for the first time since July last year. The index was up 62.86% as of May 2019 year-to-date.
Main Indices May 20191 Last 3 Months 2019 Returns 2018 Returns Annualised Returns Constituents Weighting
Eurekahedge Hedge Fund Index -0.63 1.09 4.41 -4.00 8.27% 2,443 Equal
Eurekahedge Long Short Equities Hedge Fund Index -1.39 0.38 5.61 -6.32 8.16% 952 Equal
Eurekahedge North American Hedge Fund Index -1.17 0.49 5.34 -3.05 9.04% 530 Equal
Eurekahedge Asia ex Japan Hedge Fund Index -1.44 1.08 6.15 -9.00 9.69% 168 Equal
Index of the Month May 20191 Last 3 Months 2019 Returns 2018 Returns Annualised Returns Constituents Weighting
CBOE Eurekahedge Relative Value Volatility Hedge Fund Index 0.75 0.94 1.74 -3.91 8.04% 26 Equal

Main Indices

Eurekahedge Main Indices May 20191 2019 Returns 2018 Returns
Eurekahedge Hedge Fund Index -0.63 4.41 -4.00
Eurekahedge Fund of Funds Index -0.62 4.67 -4.43
Eurekahedge Long-only Absolute Return Fund Index -2.58 7.61 -10.90
Eurekahedge Islamic Fund Index -1.65 5.05 -4.71

Regional Indices

North American fund managers were down 1.17% in May, bringing their year-to-date return to 5.34%. The deteriorating trade relation between the US and China is expected to weigh on the region’s equity market performance, which has enjoyed robust Q1 economic growth and accommodative central bank policies since the beginning of the year. Over in Asia, fund managers with Asia ex-Japan investment mandate ended the month down 1.44%, bringing their year-to-date gain to 6.15%. Latin American fund managers emerged largely unscathed, as they gained 1.05% in May.

Eurekahedge Regional Indices May 20191 2019 Returns 2018 Returns
Eurekahedge North American Hedge Fund Index -1.17 5.34 -3.05
Eurekahedge European Hedge Fund Index -0.13 3.75 -4.87
Eurekahedge Eastern Europe & Russia Hedge Fund Index 1.09 9.60 -12.79
Eurekahedge Japan Hedge Fund Index -1.19 1.49 -9.25
Eurekahedge Emerging Markets Hedge Fund Index -0.90 5.54 -5.22
Eurekahedge Asia ex Japan Hedge Fund Index -1.44 6.15 -9.00
Eurekahedge Latin American Hedge Fund Index 1.05 5.39 7.04

Strategy Indices

Returns were mixed across strategic mandates in May. Long-biased equity hedge funds lost 3.05% during the month, but still maintained their top spot in terms of year-to-date performance. On the other end of the spectrum, long volatility fund managers were down 6.35% over the first five months of the year. Among the major strategic mandates, distressed debt and macro fund managers posted the best returns during the month, as they gained 0.52% and 0.33% respectively.

Table 1: Index Flash Strategy Return Map

US-China Trade Tension

Eurekahedge Strategy Indices May 20191 2019 Returns 2018 Returns
Eurekahedge Arbitrage Hedge Fund Index -0.51 1.93 -0.85
Eurekahedge CTA/Managed Futures Hedge Fund Index -0.44 2.27 -3.83
Eurekahedge Distressed Debt Hedge Fund Index 0.52 3.29 2.72
Eurekahedge Event Driven Hedge Fund Index -2.42 4.12 -3.26
Eurekahedge Fixed Income Hedge Fund Index -0.09 3.83 0.05
Eurekahedge Long Short Equities Hedge Fund Index -1.39 5.61 -6.32
Eurekahedge Macro Hedge Fund Index 0.33 3.38 -2.71
Eurekahedge Multi-Strategy Hedge Fund Index -0.01 4.22 -3.60
Eurekahedge Relative Value Hedge Fund Index -1.08 3.52 -0.65
CBOE Eurekahedge Long Volatility Hedge Fund Index 1.20 -6.35 0.83
CBOE Eurekahedge Relative Value Volatility Hedge Fund Index 0.75 1.74 -3.91
CBOE Eurekahedge Short Volatility Hedge Fund Index 0.63 2.34 -13.03
CBOE Eurekahedge Tail Risk Hedge Fund Index n/a -0.83 -5.75
Eurekahedge Equity Long Bias Hedge Fund Index -3.05 7.84 -9.39
Eurekahedge Equity Market Neutral Hedge Fund Index 0.47 1.37 -1.90
Eurekahedge Trend Following Index -2.62 2.09 -7.06
Eurekahedge FX Hedge Fund Index 1.94 0.90 -0.25
Eurekahedge Commodity Hedge Fund Index -0.64 1.67 -5.93
Eurekahedge Crypto-Currency Hedge Fund Index 29.02 62.86 -67.92
Eurekahedge AI Hedge Fund Index -2.21 1.35 -5.05
Eurekahedge ILS Hedge Fund Index -0.84 -1.10 -3.92
Eurekahedge Global Hedge Fund Indices by Fund Size May 20191 2019 Returns 2018 Returns
Eurekahedge Small Hedge Fund Index (< US$100m) -0.69 4.45 -4.76
Eurekahedge Medium Hedge Fund Index (US$100m – US$500m) -0.70 4.11 -3.04
Eurekahedge Large Hedge Fund Index (> US$500m) -0.85 3.71 -2.47
Eurekahedge Billion Dollar Hedge Fund Index -0.47 3.73 -2.58
Mizuho-Eurekahedge Indices May 20191 2019 Returns 2018 Returns
Mizuho-Eurekahedge Index – USD -1.14 2.24 -4.30
Mizuho-Eurekahedge TOP 100 Index – USD -1.23 1.88 -2.71
Mizuho-Eurekahedge TOP 300 Index – USD -1.13 2.13 -3.56
Asia-Eurekahedge Indices May 20191 2019 Returns 2018 Returns
Eurekahedge Greater China Hedge Fund Index -6.25 5.43 -12.73
Eurekahedge India Hedge Fund Index 0.73 2.35 -7.54

1Based on 30.70% of funds which have reported May 2019 returns as at 11 June 2019

Article by Eurekahedge


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