Key highlights for December 2018:
Q3 hedge fund letters, conference, scoops etc
- The Eurekahedge Hedge Fund Index was down 3.85% in 2018, outperforming the MSCI AC World Index (Local) which declined 10.18% over the year. Throughout the year, the global hedge fund industry saw performance-based losses and net investor outflows totalling US$58.9 billion and US$51.6 billion respectively, in contrast to how the industry assets grew US$221.9 billion over the preceding year.
- The first quarter of 2018 saw the return of market volatility, which pushed nearly every major strategic mandate down into the red in February. CTA/managed futures hedge funds suffered the heftiest losses, with the Eurekahedge CTA/Managed Futures Hedge Fund Index down 4.09% in February alone. Throughout the year, the mandate had lost 14.9% of its total AUM since the end of 2017.
- Preliminary data showed that the long/short equities mandate suffered US$18.0 billion of performance-based losses and US$3.5 billion of investor redemptions in December. Investors have redeemed US$18.3 billion from equity hedged strategies over the past year as they ended 2018 as the worst performing strategy – down 6.27% for the year.
- European hedge fund managers have been struggling under the uncertainties surrounding Brexit negotiations and Italy’s budget concerns throughout most of 2018. The Eurekahedge European Hedge Fund Index spent eight months of 2018 in the red, and recorded its worst yearly return (-4.42%) since the peak of the Eurozone crisis in 2011.
- Hedge fund managers focusing on Asia Pacific have been suffering from the US-China tariff spat and the Fed’s rate hikes, which sent Asian equity markets and currencies plummeting. Greater China and India mandates, the two best performers among regional mandates in 2017, were down 14.24% and 7.37% respectively throughout 2018.
- Fund managers utilising AI/machine learning strategies were up 1.52% in November and 1.43% in December, ending their streak of losses which resulted in the first negative annual return recorded by the Eurekahedge AI Hedge Fund Index. The index was down 3.68% over 2018.
- The Eurekahedge ILS Advisers Index was down 2.93% throughout 2018, marking it as the second worst year behind 2017, during which the index slumped 5.60%. As the catastrophic losses incurred by Hurricane Florence and Hurricane Michael came to light, the US$100.7 billion ILS hedge fund industry were adversely affected.
- The Eurekahedge Crypto-Currency Hedge Fund Index was down 6.04% in December, as Bitcoin price nearly touched the US$3,000 level in the middle of the month. The index has wiped 70.27% of its value throughout 2018. In comparison, the index soared 1,708.50% in 2017, supported by the rally in crypto-currency prices during the year.
The Eurekahedge Hedge Fund Index ended the month of December down 1.31%, dragging its year-to-date decline to 3.85% after five consecutive months of losses. Concerns over the US treasuries yield curve inversion and further Fed tightening in 2019 triggered a sell-off across the global equity markets, marking December as the worst month of 2018 for equity markets. Throughout the month, only 38.4% of hedge fund managers tracked by the Eurekahedge Hedge Fund Index were able to remain in the positive territory, while in comparison the global equity markets as represented by the MSCI AC World Index (Local) plummeted 7.61%. Less-dovish-than-expected Fed stance, combined with weakness in the tech sector over global growth slowdown continued to weigh on the US equity markets, and resulted in 9.18% and 8.66% losses for the S&P 500 index and the Dow respectively – the worst December performance since the Great Depression for the latter. On the other hand, uncertainties continued to loom over the European economies as Brexit negotiation remained inconclusive, despite the Italian government’s success in striking a deal with the European Union over their budgetary planning. Looking at year-to-date performance, preliminary numbers revealed that roughly 8.6% of the hedge fund managers tracked by Eurekahedge were still able to maintain double-digit returns throughout 2018 despite all the challenges the industry has faced.
North American hedge fund managers ended the month down 3.21%, as the underlying equity markets recorded their worst month of 2018. The Eurekahedge Japan Hedge Fund Index slumped 3.79% during the month, underperforming their peers from the other Asian regions. In comparison, the Nikkei 225 index and the TOPIX were down 10.33% and 10.40% respectively in December.
December 2018 and November 2018 returns across regions
On a year-to-date basis, North American fund managers were down 2.87%, as the losses they posted in October and December wiped out a significant portion of the gains made in preceding months. Latin American fund managers were up 7.66% year-to-date, owing to the underlying equity market performance which benefited from improving economic outlook and dwindling political concerns. Meanwhile, Asian fund managers continued to lag behind their peers focusing on other regions despite the improving progress of the US-China trade talk, with the Eurekahedge Asia ex-Japan Hedge Fund Index and the Eurekahedge Japan Hedge Fund Index down 9.38% and 9.53% respectively over the year.
2018 year-to-date returns across regions
Mizuho-Eurekahedge Asset Weighted Index
The asset-weighted Mizuho-Eurekahedge Index – USD ended December up 0.14%, bringing their 2018 year-to-date return to -3.58%. 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.
Returns were mixed among the Mizuho-Eurekahedge indices, with the Mizuho-Eurekahedge Long Short Equities Index losing 2.03% over the month, thanks to the massive sell-off in the global equity market as investors fled into less risky assets. On a year-to-date basis, all of the Mizuho-Eurekahedge indices remained in the red, with the Asia Pacific and long short equities fund managers posting the sharpest declines as they ended the year of 2018 down 8.58% and 6.89% respectively.
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Mizuho-Eurekahedge Indices December 2018 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 Long Volatility Hedge Fund Index ended the month up 6.00%, as the market volatility heightened throughout the month thanks to the equity market sell-off over the yield curve inversion and slowing economic growth. The CBOE VIX index peaked at 36.07 during the Christmas Eve following the US President Donald Trump’s mention of his desire to fire the Fed chair Jerome Powell over their differing views on Fed policies. On the flip side, fund managers utilising short volatility strategies ended the month down 5.49%. On a year-to-date basis, except for long volatility managers all of the volatility strategies remained in the red, with short volatility fund managers down 13.10%. The CBOE Eurekahedge Long Volatility Hedge Fund Index was up 1.33% in 2018 as the gain made in December outweighed the losses accumulated over the rest of the year.
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CBOE Eurekahedge Volatility Indexes December 2018 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
Article by Eurekahedge
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.
