Eurekahedge Hedge Fund Index Down 4.40% In MarchJacob Wolinsky
Long volatility, CTAs and AI hedge funds shine as hedge fund performance dispersion widens to October 2008 level
The Eurekahedge Hedge Fund Index was down 4.40% in March, outperforming the underlying equity market as represented by the MSCI ACWI IMI (Local), which lost 13.99% over the month. Global equities were in free fall throughout the better part of the month, before recouping some of their losses later on. The COVID-19 outbreak continued to worsen across more than a hundred countries, with the United States overtaking China as the country with the highest number of confirmed cases. US authorities were forced to implement lockdown and stringent social distancing measures to contain the outbreak, resulting in an increase in unemployment rate and slowing economic growth as businesses deemed non-essential were forced to temporarily cease their operations. In response, the US administration introduced an economic stimulus package worth US$2 trillion on top of the Fed’s emergency policy rate cut and restart of quantitative easing. The moves were aimed to support the economy from the negative impact of the disease outbreak and increase market liquidity. The US equity benchmarks recorded their worst quarterly performance since 1987, as they ended the month of March with double-digit losses – the DJIA and S&P 500 were down 13.74% and 12.51% respectively. In the same vein, European equities underperformed their global peers as the coronavirus outbreak situation worsened in the region, turning it into the new epicentre of the pandemic. The CAC 40 and the DAX plummeted 18.01% and 16.44% respectively throughout the month of March. On the other hand, Chinese equity markets outperformed other regions as Mainland China is on track to ease its months-long lockdown. The Shenzhen and Shanghai Composite indices were down 7.54% and 4.51% respectively in March. Contrary to the relative underperformance of the region’s equity market, fund managers focusing on North America were down 3.48%, topping their Asia ex-Japan and European peers who were down 7.37% and 5.77% respectively over the month.
Roughly 32.0% of the underlying constituents of the Eurekahedge Hedge Fund Index posted positive returns in March, and 33.2% of the hedge fund managers in the database were up over the first three months of 2020. More than 80% of the hedge fund managers were able to outperform the global equity market during the month, exemplifying the downside protection afforded by hedged strategies as opposed to long-only portfolios. Preliminary results for March revealed it to be the most volatile month for hedge funds in recent years as captured by the dispersion of returns (See Figure 3). The top 10% of the hedge fund managers tracked by Eurekahedge have returned no less than 6.88% in March.
Below are the key highlights for the month of March 2020:
- Hedge fund managers were down 4.40% in March, outperforming the MSCI AC World Index IMI (Local) by 9.59% during the month – a level of outperformance unseen since October 2008. Long volatility-focused strategies, CTA/managed futures and AI hedge funds top the Q1 2020 league table, while equity long-biased hedge funds nurse losses of close to 20%.
- On an asset-weighted basis, hedge funds were down 6.49% in March, as captured by the Mizuho Eurekahedge Hedge Fund Index (USD). The index is currently down 8.95% year-to-date.
- As of Q1 2020, the global hedge fund industry AUM has declined by almost US$110 billion based on preliminary estimates for March data. Performance-driven losses so far for the year stand at roughly US$70 billion while investors have redeemed US$40 billion from underlying managers so far. We expect the performance-driven decline for Q1 2020 to exceed the US$130 billion mark once full March numbers have rolled in. For more details on the ‘5 Worst Quarters for the Hedge Funds Industry’ see Figure 1.
- The Eurekahedge North America Long Short Equities Hedge Fund Index slid 6.65% lower in March, attributed to the massive sell-offs in the US equity markets throughout the month, driven by the worsening COVID-19 outbreak situation in the country. Underlying constituents for the index have outperformed the S&P 500 Index by 9.24% as of March 2020 year-to-date.
- The Eurekahedge Greater China Hedge Fund Index was down 4.92% in March, outperforming the Hang Seng Index by 4.75% and the Shenzhen Composite Index by 2.62%. Optimism over the improving COVID-19 situation in Mainland China and the accommodative policies of the PBOC have provided some support for the region’s equity market. On a year-to-date basis, the US$30.7 billion mandate was down 4.64%.
- The Eurekahedge Fixed Income Hedge Fund Index was down 8.58% in March, recording its worst monthly performance since the index’s inception. Exposure to high yield corporate bonds acted as the primary performance detractor for fixed income hedge fund managers during the month, as the COVID-19 outbreak resulted in higher default rates and lower credit ratings.
- The Eurekahedge CTA/Managed Futures Hedge Fund was up 2.25% in March, despite the sharp decline of energy prices, which fell to their lowest level since 2002 during the month as fund managers adjusted their exposure to the sector. Long exposure to equities was a common performance detractor for CTA/managed futures funds during the month.
- Fund managers utilising AI/machine learning strategies gained 3.45% in March, registering their third consecutive month of outperformance against the wider hedge fund industry. On a year-to-date basis, the Eurekahedge AI Hedge Fund Index is up 3.19%
- The CBOE Eurekahedge Long Volatility Hedge Fund Index was up 23.13% in March – recording its strongest monthly return since inception. The CBOE VIX spiked past 80, a level it has not seen since October 2008, reflecting the elevated level of market volatility during the month. Fund managers comprising the index recorded their best quarterly performance since 2005, as they returned 34.79% over the first quarter of 2020.
- The Eurekahedge Crypto-Currency Hedge Fund Index was down 20.21% in March, outperforming Bitcoin which ended the month down 26.14%. Fund managers focusing on crypto-currencies are down 4.79% over the first three months of 2020.
Figure 1: The 5 Worst Quarters for the Global Hedge Funds Industry
Figure 2: Monthly outperformance of the Eurekahedge Hedge Fund Index over global equities
Figure 3: Hedge fund monthly performance distribution (last 12 months)
|Main Indices||Mar 20201||Last 3 Months||2020 YTD Returns||2019 Returns||Annualised Returns||Constituents||Weighting|
|Eurekahedge Hedge Fund Index||-4.40||-6.00||-6.00||8.65||7.81||2260||Equal|
|Eurekahedge North American Hedge Fund Index||-3.48||-5.94||-5.94||9.10||8.51||466||Equal|
|Eurekahedge Asia ex Japan Hedge Fund Index||-7.37||-8.22||-8.22||12.22||9.12||165||Equal|
|Index of the Month||Mar 20201||Last 3 Months||2020 YTD Returns||2019 Returns||Annualised Returns||Constituents||Weighting|
|CBOE Eurekahedge Long Volatility Hedge Fund Index||23.12||34.79||34.79||-10.87||5.38||9||Equal|
|Eurekahedge Main Indices||Mar 20201||2020 YTD Returns||2019 Returns|
|Eurekahedge Hedge Fund Index||-4.40||-6.00||8.65|
|Eurekahedge Fund of Funds Index||-5.48||-6.72||8.62|
|Eurekahedge Long-only Absolute Return Fund Index||-12.63||-18.05||16.01|
|Eurekahedge Islamic Fund Index||-8.29||-11.68||10.07|
North American fund managers ended the month of March down 3.48%, as they struggled to mitigate losses from long exposure to the region’s equity and high yield bond markets amidst the chaotic market situation. The mandate is currently down 5.94% year-to-date, recording its worst year post-crisis. European fund managers fared even worse in March, as they slumped 5.77%, dragging their year-to-date losses to 7.99%. The escalating coronavirus outbreak situation in the region has made it the new epicentre of the pandemic, exacerbating the concerns over the impact of the lockdowns and social distancing measures on the region’ economic outlook.
|Eurekahedge Regional Indices||Mar 20201||2020 YTD Returns||2019 Returns|
|Eurekahedge North American Hedge Fund Index||-3.48||-5.94||9.10|
|Eurekahedge European Hedge Fund Index||-5.77||-7.99||7.56|
|Eurekahedge Eastern Europe & Russia Hedge Fund Index||-18.43||-25.17||17.11|
|Eurekahedge Japan Hedge Fund Index||-5.80||-11.49||6.53|
|Eurekahedge Emerging Markets Hedge Fund Index||-9.63||-10.60||12.67|
|Eurekahedge Asia ex Japan Hedge Fund Index||-7.37||-8.22||12.22|
|Eurekahedge Latin American Hedge Fund Index||-14.22||-15.39||15.71|
Returns were mostly negative across strategic mandates in March with long volatility, tail risk and AI strategic mandates up 23.12%, 11.09% and 3.45% respectively. The volatile market environment and difficult trading situation have provided these strategies an opportunity to exhibit their value propositions over more traditional hedge fund strategies. The CTA/managed futures mandate was also up 2.25% in March, with managers generating profits from short exposure to the energy sector and long position in US dollar. On the other end, equity long bias managers slumped 15.14% in March, as they bore the brunt of the equity market sell-offs during the month.
Table 1: Index Flash Strategy Return Map
|Eurekahedge Strategy Indices||Mar 20201||2020 YTD Returns||2019 Returns|
|Eurekahedge Arbitrage Hedge Fund Index||-4.85||-4.68||5.78|
|Eurekahedge CTA/Managed Futures Hedge Fund Index||2.25||2.14||5.42|
|Eurekahedge Distressed Debt Hedge Fund Index||-13.16||-12.84||3.48|
|Eurekahedge Event Driven Hedge Fund Index||-11.97||-15.13||7.24|
|Eurekahedge Fixed Income Hedge Fund Index||-8.58||-8.37||7.95|
|Eurekahedge Long Short Equities Hedge Fund Index||-7.24||-10.10||11.22|
|Eurekahedge Macro Hedge Fund Index||-3.20||-4.04||8.24|
|Eurekahedge Multi-Strategy Hedge Fund Index||-4.93||-6.48||8.20|
|Eurekahedge Relative Value Hedge Fund Index||-3.65||-6.00||5.11|
|CBOE Eurekahedge Long Volatility Hedge Fund Index||23.12||34.79||-10.87|
|CBOE Eurekahedge Relative Value Volatility Hedge Fund Index||11.06||11.14||-1.55|
|CBOE Eurekahedge Short Volatility Hedge Fund Index||-0.45||-10.06||8.32|
|CBOE Eurekahedge Tail Risk Hedge Fund Index||11.09||27.07||-10.40|
|Eurekahedge Equity Long Bias Hedge Fund Index||-15.14||-19.45||16.64|
|Eurekahedge Equity Market Neutral Hedge Fund Index||-3.49||-4.37||1.79|
|Eurekahedge Trend Following Index||2.13||1.14||6.08|
|Eurekahedge FX Hedge Fund Index||-6.24||-4.71||0.71|
|Eurekahedge Commodity Hedge Fund Index||-1.20||-4.16||7.98|
|Eurekahedge Crypto-Currency Hedge Fund Index||-20.21||-4.79||15.56|
|Eurekahedge AI Hedge Fund Index||3.45||3.19||6.29|
|Eurekahedge ILS Hedge Fund Index||-0.29||0.62||0.92|
|Eurekahedge Global Hedge Fund Indices by Fund Size||Mar 20201||2020 YTD Returns||2019 Returns|
|Eurekahedge Small Hedge Fund Index (< US$100m)||-3.71||-5.71||8.49|
|Eurekahedge Medium Hedge Fund Index (US$100m – US$500m)||-6.71||-8.04||8.87|
|Eurekahedge Large Hedge Fund Index (> US$500m)||-5.18||-6.01||8.85|
|Eurekahedge Billion Dollar Hedge Fund Index||-4.50||-5.44||8.49|
|Mizuho-Eurekahedge Indices||Mar 20201||2020 YTD Returns||2019 Returns|
|Mizuho-Eurekahedge Index – USD||-6.49||-8.95||6.97|
|Mizuho-Eurekahedge TOP 100 Index – USD||-5.52||-8.26||6.89|
|Mizuho-Eurekahedge TOP 300 Index – USD||-6.43||-8.90||7.09|
|Asia-Eurekahedge Indices||Mar 20201||2020 YTD Returns||2019 Returns|
|Eurekahedge Greater China Hedge Fund Index||-4.92||-4.64||16.66|
|Eurekahedge India Hedge Fund Index||-14.56||-14.62||1.59|
1Based on 29.03% of funds which have reported March 2020 returns as at 8 April 2020