Hedge fund start 2H 2018 on a positive note despite struggle for Asian mandates
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Q2 hedge fund letters, conference, scoops etc
The Eurekahedge Hedge Fund Index gained 0.41% during the month of July, kicking off the second half of the year on a positive note, despite trailing behind the MSCI AC World Index (Local) which rallied 2.59% over the same month. Despite the trade friction between the US and China showing no signs of slowing down, North American equity markets posted notable performance on the back of the second quarter earnings season which saw strong earnings from major corporates. The Eurekahedge North American Hedge Fund Index gained 1.17% in July. European fund managers were also in positive territory, gaining 0.42% over the month, supported by export-sector related equities following the meeting between the US president and the European Commission president which resulted in an agreement to lower tariffs for non-automotive industrial goods. On the other hand, emerging markets were a mixed bag with gains among Indian and Latin American fund managers, and losses among their peers focusing on Greater China and broad Asia ex-Japan mandates. Across primary investing strategies, most of the Eurekahedge strategy indices edged higher, with the exception of macro, event driven, and CTA/managed futures indices which posted minor losses of 0.17%, 0.10%, and 0.09% during the month.
Roughly 60.6% of the underlying constituents in the Eurekahedge Hedge Fund Index were in positive territory by end-July, with fixed income fund managers leading the pack, gaining 0.81% on average. Among regional mandates, managers with exposure towards Greater China lost 2.39% over the month owing to the poor performance of Chinese equity markets under pressure from the ongoing US-China trade friction. On the other end of the spectrum, Latin American fund managers gained 3.02% in July, bringing their year-to-date gains to 3.85%.
Below are the key highlights for the month of July 2018:
- Hedge funds were up 0.41% in July, bringing their year-to-date returns up to 0.43%. On the other hand, the MSCI AC World Index (Local) was up 2.59% over the first seven months of 2018. Almost a third of hedge fund managers have outperformed the 2.59% gain posted by the MSCI AC World Index.
- On a year-to-date basis, 8.5% of hedge fund managers have posted double digit gains, mostly concentrated on global long/short equities mandate. In contrast, roughly 22.7% of the fund managers posted double digit gains over the first seven months of 2017.
- Latin American fund managers topped the table among geographic mandates, gaining 3.02% supported by the region’s equity markets which rallied on the back of easing political concerns in Brazil and Mexico.
- Greater China focused hedge fund managers have outperformed underlying markets as represented by the Shanghai and Shenzen Composite Indices by over 10.5% and 14.5% respectively on a year-to-date basis. Despite the ongoing US-China trade tensions, 10.4% of the fund managers tracked by the Eurekahedge Greater China Hedge Fund Index have posted year-to-date returns in excess of 10%.
- Across strategic mandates, fixed income funds topped the table with their 0.81% return over the month, bringing their year-to-date return to 1.18%. On the other hand, CTA/managed futures hedge funds lost 0.09% in July, marking their third consecutive month of losses.
- The Eurekahedge Relative Value Hedge Fund Index edged 0.50% higher in July, with the underlying volatility sub-strategies posting mixed returns. Short volatility fund managers gained 3.58% over the month while long volatilitywas the only member of the CBOE Eurekahedge Volatility Indexes to post losses during the month, slipping 1.53%.
- As opposed to the trend over the preceding month, small hedge fund managers outperformed their larger peers managing in excess of US$100 million in AUM. The Eurekahedge Small Hedge Fund Index gained 0.56% throughout the month, while medium and large fund managers posted gains of 0.28% and 0.12% respectively.
- Preliminary numbers show that AI hedge funds are on track to post a fourth consecutive month of losses, with the Eurekahedge AI Hedge Fund Index down 0.09% in July. This loss brought their year-to-date return down to -2.64%, placing them behind all of the primary strategic mandates.
- The Eurekahedge Crypto-Currency Hedge Fund Index which tracks 14 hedge funds investing in crypto assets was up 1.65% in July, supported by the recovery of some major crypto-currencies such as Bitcoin and Ethereum. On a year-to-date basis, crypto-currency hedge fund managers were still down 40.44%, narrowly outperforming the Bitcoin price index which declined 44.25% over the same period.
Main Indices
Regional Indices
North American fund managers ended the month up 1.17% boosted by the underlying equity markets which rallied thanks to strong corporate earnings. On a similar note, European fund managers also managed to profit off the underlying equity markets which saw gains following the agreement between the US and the EU to reduce tariffs for non-automotive goods. The Eurekahedge European Hedge Fund Index gained 0.42% in July, and was up 0.79% on a year-to-date basis.
The month of July saw strong performance among Latin American and Indian fund managers who posted gains of 3.02% and 2.39% respectively. Equity markets in Brazil and Mexico were boosted by dwindling political concerns and strong currencies, while Indian equities gained from the goods and services tax cut. On the other hand, Asia ex-Japan fund managers were down 0.62% over the month, dragged down by the underperformance of Hong Kong and South Korean equities. The benchmark Hang Seng Index and KOSPI were down 1.29% and 1.33% respectively during the month. Strong gains among Taiwanese semiconductor equities were among the performance contributors for fund managers focusing in the region.
Strategy Indices
The Eurekahedge Fixed Income Hedge Fund Index topped the table across strategic mandates in July, gaining 0.81% on the back of rising bond yields around the globe. Speculations over the ultra-loose monetary policy of the Bank of Japan caused the Japanese government bond yield curve to steepen. Over in Europe, the yields of UK gilts and German bunds edged higher alongside the decline in trade friction concerns. The US 10-year treasuries yield gained nearly 10 bps to 2.96% by the end of July.
On the other hand, event driven hedge fund managers suffered losses in July, with the Eurekahedge Event Driven Hedge Fund Index slumping 0.10%. Many event driven fund managers fell victim to the elevation of trade friction between the US and China, which resulted in the Chinese antitrust authorities disapproving Qualcomm’s planned acquisition of NXP Semiconductors. CTA/managed futures hedge funds were among the strategic mandates which posted losses over the month, weighed down by the declines in commodity prices. Industrial and precious metals were mostly down, followed by oil prices which slumped over OPEC’s announcement of supply increase. The Eurekahedge Commodity Hedge Fund Index posted a loss of 0.77% over the month, which dragged its year-to-date return back into the red (-0.57%).
Table 1: Index Flash Strategy Return Map
1 Based on 47.33% of funds which have reported July 2018 returns as at 14 August 2018
