Hedge Funds Outperformed Underlying Markets, Up 1.36% While Preserving 2015 Gains

Hedge Funds Outperformed Underlying Markets, Up 1.36% While Preserving 2015 Gains by Eurekahedge

Hedge funds posted their third consecutive month of losses with the Eurekahedge Hedge Fund Index down 1.75%¹in August while the MSCI World Index²lost 6.66% during the month as fears over China’s economic outlook intensified with global equity markets seeing broad based declines. Despite the setback, hedge funds have outperformed underlying markets as represented by the MSCI World Index by 5.06% over the last three months.

On a year-to-date basis, hedge funds are up 1.36%, which compares with a gain of 4.07% seen over the same period last year.

Key takeaways for the month of August 2015:

• Hedge funds preserved their 2015 gains and outperformed underlying markets as represented by the MSCI World Index by 5.06% over the last three months. On a year-to-date basis, hedge funds are up 1.36% while underlying markets are down by 1.90%.
• Among developed market investment mandates, Japanese and European managers lead with year-to-date gains of 5.70% and 4.36% respectively.
• The CBOE Eurekahedge Tail Risk Hedge Fund Index was the best performing strategic mandate in August 2015, up 4.44% during the month.
• North America mandated hedge funds posted their worst monthly loss since 2011, down 2.03%. On a year-to-date basis, they are up 0.31% while the S&P500 and DJIA are down 4.21% and 7.27% respectively.
• Greater China investing hedge funds have preserved their gains from earlier during the year and are up 3.22% year-to-date, outperforming the CSI 300 Index by almost 8%. Long-only funds investing with a China mandate are down 11.67% in August while the hedged strategies declined 6.55%.
• On a year-to-date basis Asia ex-Japan mandated hedge funds are up 4.45% and have outperformed the MSCI AC Asia ex Japan Index by almost 12%.

Main Indices

Most regional mandates, excluding Japan ended the month of August in the red with emerging market mandated funds seeing the steepest decline. The Eurekahedge Emerging Markets Hedge Fund Index was down 3.59% during the month, though managing to outperform underlying markets as the MSCI Emerging Markets Index³declined 6.80% in August. Asia ex-Japan investing funds lost 3.56% while those with a Latin American mandate declined 3.55%. A steep downturn in Chinese equity markets, which saw them return entire gains for 2015 added to the negative sentiment with developed market equity indices following their Asian counterparts lower during the month. The Eurekahedge Greater China Hedge Fund Index was down 6.55% in August, with underlying funds managing to reduce their losses as the CSI 300, Shanghai and Shenzhen composite indices declined 11.23%, 12.49% and 15.18% respectively. On a year-to-date basis, Greater China investing hedge funds have preserved their gains from early 2015 and are up 3.22%, outperforming the CSI 300 Index by almost 8%. Within the developed market mandates, North American hedge funds posted the strongest decline, down 2.03% followed by European mandates down 1.03% while Japan dedicated funds stood out with gains of 0.32%. On a year-to-date basis, Japan dedicated managers lead among all regional mandates with gains of 5.70% (replacing Greater China mandates) following seven consecutive months of gains since January.

Regional Indices

Most strategic mandates, with the exception of tail-risk strategies ended the month of August in the red. China’s move to de-value its currency rattled equity markets globally which trended downwards over fears of a China-led global economic slowdown. Volatility levels spiked during the month with commodities and emerging market currencies trading lower during the month. This in tandem with a potential rate hike by the US Fed later in September adds to serious worries about the strength of the global economic recovery, although given the events over the last few months it is likely that the fabled rate hike will continue to elude us. Long/short equities were down 1.99% in August amid the biggest equity market sell-off in four years, with Asia ex-Japan long/short equity managers seeing the steepest declines, down 4.49%. Hedge funds strategies taking a short view on volatility saw the biggest losses among hedge fund strategies, down 3.40% during the month as volatility levels as denoted by the VIX Index broke past the 40 mark. This development however worked to the favor of tail-risk strategies, with the Eurekahedge Tail Risk Hedge Fund Index up 4.44%, posting its strongest monthly return since May 2012. CTA/managed futures strategies, which had earlier posted gains in July were down 2.21% in August, with managers realizing losses on equity market futures as well giving back some of their gains from short position in energy as oil prices saw a surprise rebound towards the month end. Fixed income strategies were also hurt during the month, down 1.14% as risk averse investors piled into short term US treasuries with managers realizing losses from their short bets on these debt securities.

Strategy Indices

* Based on 31.38% of funds which have reported August 2015 returns as at 8 September 2015