Hedge Fund Managers Were Up 0.54% In JanuaryJacob Wolinsky
Key highlights for January 2021:
- Hedge fund managers were up 0.54% in January – outperforming the global equity market as represented by MSCI ACWI which gained 0.43% during the month. The top 10% of global hedge funds generated an average return of 4.72% during the month, while 56.0% of total constituents have outperformed the broader equity market. In terms of annual return, 2020 was a notable year for the industry as they recorded 12.11% – their best annual performance in over a decade, despite having their worst start in the early part of the year.
- Final assets under management for the global hedge funds declined by US$54.1 billion throughout 2020, driven by US$37.4 billion of performance-based growth, heavily offset by US$91.5 billion of net investor redemptions. The industry has managed to recover from its largest performance-based decline of US$178.2 billion suffered in Q1 2020 as they racked up an accumulated performance-based growth of US$215.6 billion over the last three quarters of 2020. On the other hand, net investor flows ended the year in red as global hedge funds accumulated total net outflows of US$5.6 billion over the last nine months which added to their recorded net outflows of US$85.9 billion reported over the first three months.
- The market breakdown in the early part of the year resulted in global hedge funds recording 910 closures in 2020 – the highest annual numbers since 2012. The industry logged 318 closures in Q1 2020 compared to 438 in Q4 2008. On the other hand, the global hedge fund industry witnessed 538 launches throughout the year, which was the lowest level since 2000.
- The Eurekahedge Long Short Equities Hedge Fund Index was up 0.95% in January, outperforming the S&P 500 by 2.05% during the month. In terms of yearly return, the mandate recorded their third double-digit annual return over the last four years, with their 13.25%, 11.86% and 17.70% return in 2017, 2018 and 2020 respectively. In the same year, long/short equities funds also consistently outperformed their major strategic peers, supported by the strong performance of the global equity market.
- The Eurekahedge Greater China Hedge Fund Index was up 4.02% in January, outperforming the Shenzhen and Shanghai Composite by 3.78% and 3.73% respectively. In terms of annual return, the Greater China mandate had an exceptional performance in 2020 as they gained 35.48%, with the top 10% of hedge funds gaining an average return of 80.54%. In the same vein, the assets under management of the Greater China mandate grew to US$89.7 billion from US$67.8 billion since end-2019 – recording the bestAUM growth of 32.3% since inception.
- Structured credit hedge funds were up 1.88% in January, outperforming its distressed debt and fixed income peers who returned 0.41% and 0.38% respectively. In terms of 2020 return, structured credit hedge funds underperformed their other credit-focused peers with a 3.06% loss. The mandate recorded an accumulated return of 24.46% over the last three quarters of 2020 but was still insufficient to offset the 22.11% losses suffered in the first quarter of the year.
- Hedge funds focusing on cryptocurrencies started the year strong, with their 31.50% return in January. Cryptocurrency fund managers also recorded their best four-month run since 2017 as they gained an accumulated return of 141.40% since end-September. In terms of annual return, cryptocurrencies hedge funds recorded their third-best yearly return of 198.37% in 2020, behind their 1,708.50% and 905.78% gain in 2017 and 2013 respectively.
Key Trends in Asian Hedge Funds
The Eurekahedge Hedge Fund Index was up 0.54% in January 2021, outperforming the global equity market as represented by the MSCI ACWI (Local) which gained 0.11% over the same period. Global equities went on a roller coaster ride this month as their early gains were erased due to the turbulence of retail investment in the latter part of January. In the US, Joe Biden’s inauguration as the 46th president in the US and Democrats taking control in the Senate boosted the performance of the equity market in the earlier period of the month. Investors were optimistic about the proposed domestic stimulus and shift in the foreign policy of the new administration. However, market risk sentiment rapidly changed as the clash between retail investors and notable hedge funds over GameStop stock affected investors’ confidence in the stability of the market. A group of retail investors in a trading community collectively bought GameStop shares which pushed its price to an extreme level. The massive buying squeezed the position of a notable hedge fund that bet against the company, resulting in them losing more than half of their assets under management (AUM). This incident forced brokers to place trading restrictions on the stock. The US equity benchmark erased the gains they generated in the earlier part of January, with the DJIA and S&P 500 losing 2.04% and 1.11% respectively. Over in Europe, most of the equity benchmarks in the region were in negative territory, with the CAC 40 and DAX down 2.74% and 2.08% respectively. Returns were mixed across geographic mandates in January, with Asia ex-Japan and North American hedge funds gaining 2.26% and 0.69% respectively, while European hedge funds were down 0.23%. Across strategies, event driven, long/short equities and arbitrage fund managers were up 1.65%, 0.95%, and 0.74% respectively throughout the month.
Roughly 54.7% of the underlying constituents of the Eurekahedge Hedge Fund Index posted positive returns in January, and 34.1% of the hedge fund managers in the database were able to maintain double-digit returns in 2020.
January 2021 and December 2020 returns across regions
Figure 2 illustrates the 2020 performance of hedge fund managers across regions. All geographic mandates ended 2020 in positive territory, despite recording 7.86% losses in the first quarter. Global hedge funds registered their best nine-month run since the inception of the index as they returned 21.67% for the month ending in December. The global equity market strongly recovered from its low in March, supported by the easing economic policies, encouraging progress of vaccine development and positive geopolitical development. Asia ex-Japan hedge funds outperformed their regional peers, with their 23.02% return – followed by North American hedge funds which gained 15.22%. On the other hand, Japanese hedge funds lagged behind the group as they only returned 0.99% throughout 2020.
2020 returns across regions
The Eurekahedge Asset Weighted Index – USD lost 0.96% in January, as larger hedge funds struggled to generate positive performance during the month. On the other hand, the Eurekahedge Asset Weighted Index was up 4.37% in 2020, eclipsing their registered double-digit losses in the first quarter. The large disparity in returns between the Eurekahedge Asset Weighted Index and the Eurekahedge Hedge Fund Index shows that larger hedge funds struggled to recover from their losses in the early part of the year compared to their smaller peers. It should also be noted that the Eurekahedge Asset Weighted 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.
Most of the Eurekahedge asset-weighted indices were down in January, with the long/short equities and emerging markets mandate down 2.25% and 1.59% respectively. Market risk-off sentiment resurfaced in the latter part of the month due to the turbulence of retail investment which pushed the price of some meme stocks to an extreme level. The mentioned event affected the confidence of the investors towards the stability of the market. In terms of 2020 return, Asia Pacific mandates were in the lead, with their 18.04% return compared to the -4.98% return of the emerging markets mandate.
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 Volatility Indexes ended the month of January in negative territory, with relative value and short volatility hedge funds down 2.69% and 1.33% respectively. In terms of 2020 returns, the CBOE Eurekahedge Tail Risk Volatility Hedge Fund Index topped the chart with its 34.84% return, while the CBOE Eurekahedge Short Volatility Hedge Fund Index was down 1.41%, placing them last among the four volatility strategy categories.
Summary monthly asset flow data since January 2013
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