Key highlights for February 2021:
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- Hedge fund managers were up 2.99% in February – recording their third consecutive month of outperformance against the global equity market as represented by the MSCI ACWI which returned 2.72% over the month. In terms of performance distribution, the top 10% of global hedge funds generated an average return of 11.45% over the first two months of the year, while the bottom 10% declined by 2.68%. In the same vein, more than 70% of the global hedge funds tracked by the Eurekahedge database generated a positive return in 2021.
- On an asset-weighted basis, hedge funds were up 1.54% in February, as captured by the Eurekahedge Asset Weighted Index – USD. In terms of 2021 performance, the index is only up 1.21%, highlighting the struggles for some of the larger asset managers as seen in the performance decline of billion-dollar hedge funds in Table 2.
- North American hedge funds gained 3.90% in February, outperforming their European and Asia ex-Japan peers who returned 2.55% and 1.29% over the same month, respectively. The underlying long/short equities mandate of the region was the primary contributor to the index’s performance as they returned 5.37% over the month as represented by the Eurekahedge North American Long Short Equities Hedge Fund Index. In terms of year-to-date return, North American hedge funds also have the best performance as they were up 4.98% over the first two months, compared to 4.02% and 2.63% of Asia ex-Japan and European hedge funds.
- The Eurekahedge CTA/Managed Futures Hedge Fund Index was up 3.95% in February, recording its best monthly performance since the aftermath of the 2008 global financial crisis. Fund managers with exposure to the energy sector were the primary performance driver to the index, supported by the decision of OPEC and its allied members to cut their oil production which resulted in a sharp increase in oil prices over the month. On a year-to-date basis, the CTA/managed futures managers were up 3.42%, with the top 10% gaining 10.63% on average.
- Hedge funds utilising AI strategies were down 0.09% in February, underperforming most of their strategic peers. In terms of year-to-date return, AI hedge funds also lagged the group as they were down 2.52% compared to the 6.69% return of their long-bias sub-strategic peers.
- Structured credit hedge funds were one of the most consistent strategic mandates since the market breakdown in March 2020, as they gained 1.06% in February and recorded their 11th consecutive month of positive performance. In terms of year-to-date return, the Eurekahedge Structured Credit Hedge Fund Index was up 2.87% as of February 2021.
- Fund managers focusing on cryptocurrencies were up 34.98% in February as tracked by the Eurekahedge Crypto-Currency Hedge Fund Index – posting their highest monthly performance since May 2019. On a year-to-date basis, cryptocurrency hedge funds are having their best start of the year as they generated 74.88% return in the first two months of 2021, thanks to the strong rally of Bitcoin which just recently broke the US$60,000 level.
Key Trends in Funds of Hedge Funds
The Eurekahedge Hedge Fund Index was up 2.99% in February 2021, outperforming the global equity market as represented by the MSCI ACWI (Local) which gained 2.72% over the same period. Global equity markets resumed their rally in the first two weeks of February on strong earnings and economic recovery hopes as the successful implementation of Biden’s US$1.9 trillion economic stimulus package looked increasingly likely. This combined with the continued speedy rollout of vaccines across the United States led to a huge rise in risk-on sentiment, with the DJIA hitting an all-time high of 31,961.86 on 24 February 2021. Global longer tenor bond yields began to increase steadily mid-month and spiked in the final weeks as concerns around inflation began to emerge. The UK 10-year bond yield and 10-year US treasury note were up 49bp and 34 bp in February respectively, negatively impacting sentiment towards equities and equities sold off in the final week of the month. The DJIA pared gains made in the earlier period of the month, losing 3.2% from the peak and ending February 2021 at 30,932.37.
Over in Europe, returns were positive among equity benchmarks in the region as the CAC 40 and Euro Stoxx 50 took the lead with gains of 5.63% and 4.45% respectively. Returns were mixed across geographic mandates in February with North American and European hedge funds gaining 3.90% and 2.55% respectively while Latin American hedge funds were down 0.68%. Across strategies, CTA/managed Futures and long/short equities outperformed their strategic peers with returns of 3.95% and 3.92% respectively throughout the month. Managers utilising CTA/managed futures strategies benefitted from the strong rise in commodity prices, driven largely by the surge in prices of Brent Crude Oil and West Texas Intermediate Crude oil of 20.06% and 20.28% respectively in February as Saudi Arabia volunteered to cut output beyond levels previously negotiated with OPEC.
Roughly 75.5% of the underlying constituents of the Eurekahedge Hedge Index Fund Index posted positive returns in February, and 13.1% of the hedge fund managers in the database were able to maintain a double digit return in 2021.
February 2021 and January 2021 returns across regions
As of February year-to-date, most of the geographic mandates with the exception of Latin America have recorded positive returns. Global hedge funds registered their best February year-to-date return since 2012 as they returned 4.02%, supported by the strong performance of the global equity market as investor optimism rose due to the anticipated implementation of Biden’s US$1.9 trillion COVID-19 relief bill and the continued rollout of vaccines. North American hedge funds outperformed their regional peers with their 4.98% return, followed by Asia ex-Japan hedge funds which returned 4.02%. At the other end of the spectrum, Latin American hedge funds trailed behind the group with a return of -1.92% as their returns were negatively impacted by the poor performance of the Latin American equity market, with the MSCI EM Latin America Index IMI (Local) returning -4.04% over the first two months of 2021.
2021 returns across regions
The Eurekahedge Asset Weighted Index – USD was up 1.54% in February, supported by the strong performance of the global equity market. In terms of year-to-date return, the Eurekahedge Asset Weighted Index was up 1.21%, falling behind the Eurekahedge Hedge Fund Index which returned 4.02% over the same period. The large disparity in returns between the Eurekahedge Asset Weighted Index and the Eurekahedge Hedge Fund Index shows that larger hedge funds continue to struggle relative to their smaller peers in 2021. 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 generated positive returns in February, with the long/short equities and Asia Pacific mandates taking the lead with their respective returns of 2.65% and 1.71%. In terms of year-to-date return, the Asia Pacific mandate was the top performer with a return of 4.50%, buoyed by the strong performance of the Asia Pacific equity market. On the other hand, the Latin American mandate was the poorest performer with a return of -2.64% as the poor performance of the Latin American equity market during the period negatively impacted returns.
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 February with mixed returns, with short volatility and relative value hedge funds up 1.83% and 1.75% respectively while tail risk and long volatility hedge funds were down 1.66% and 1.28% respectively. In terms of February year-to-date return, most of the indices were in negative territory with the CBOE Eurekahedge Short Volatility Hedge Fund Index being the only exception with a positive return of 0.60%. On the other end of the spectrum, the CBOE Eurekahedge Tail Risk Volatility Hedge Fund Index lost 2.35%, placing them last among the four volatility strategy categories.
Summary monthly asset flow data since January 2013
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