Summary
With one-third of 2017 in the books, the $3 trillion hedge fund industry has generally done well by its investors this year. While some segments produced disappointing results in April, gains have remained the norm over the last six months, and for nearly all of the last fifteen months.
[dalio]
Equity-related strategies were again the primary winners in April, with long/short equity and activists leading the industry thus far in 2017. All major strategies were positive during the month, and one primary market, commodities, has produced poor aggregate returns. There has been difficulty within the large macro and managed futures universes, which is unfortunate as this has been where the majority of new assets have been allocated in 2017.
Highlights
- Hedge funds returned an average of +0.66% in April, and +3.04% YTD in 2017
- Long/short equity and activists leading the industry
- Emerging markets’ run continues with India pulling away as a clear leader
- Large macro and managed futures funds fall as investor sentiment warmed
Industry Returns Positive for 6th Month in a Row, Gains not Aligned with 2016/2017 Allocation Preferences
Hedge funds returned an average of +0.66% in April, and aggregate returns are +3.04% YTD in 2017. Equity-related strategies were again the primary winners in April, with long/short equity and activists leading the industry thus far in 2017. All major strategies were positive during the month, and only one primary market, commodities, has produced poor aggregate returns.
Key Points
- Returns across the industry continue to be broadly positive.
The proportion of managers with positive returns was back near the 70% mark in April. The volatility of returns produced was extremely low during the month. The difference between the average gain and average loss in April was the smallest in more than five years. - Inflows resumed into managed futures funds in Q1, but losses are adding up.
Not every large managed futures fund is performing poorly in 2017, but more than half are. Additionally, all except one of the largest managed futures funds reporting YTD losses in 2017 were also down in 2016. While flows were positive in Q1, this creates a difficult environment for investors
to allocate into going forward. - Activists and LS equity managers are leading the industry in 2017.
Undoubtedly benefiting from strong equity markets, activists have picked up in 2017 where they left off in 2016, as industry leaders. Whereas European equity exposure was a drag on LS equity managers in 2016, that weight has been reduced and that universe is broadly higher this year. - Commodity strategies post third consecutive loss in April.
As one of the only segments of the industry to see aggregate net inflows in 2016, recent commodity fund performance has likely been disappointing. After three consecutive negative months, during which the largest products have underperformed, the universe is the most negative of any asset class or primary strategy in 2017. - Large macro funds facing similar issues as their managed futures peers.
The largest macro funds had emerged from 2016 as industry outperformers, however 2017 has proven a more difficult operating environment. Seven of the ten largest reporting funds through April are down in 2017, just as investors have begun to increase allocations into the universe.
Led by India, EM Outperformance Continues into Fourth Month of 2017
Emerging market strategies produced returns double that of developed market strategies in April for the fourth month in a row. All regional EM exposures are positive in 2017, but India has emerged as the overwhelming leader.
Key Points
- China-focused funds are up over 10% in 2017.
While flows indicate investors remain cautious at best toward country specific exposure, funds focused on Chinese markets have produced four solid monthly gains to start 2017. - India has returned to the forefront of emerging market performance.
After two years of mildly positive returns, hedge funds investing in India have taken over the lead in EM hedge fund performance in 2017. Returns generated from the country exposure are now nearly double any other regional focus this year.
Article by eVestment
