Introduction
Hedge funds gained for the fifth consecutive month in July, up 1.52%1 while underlying markets, as represented by the MSCI AC World Index (Local) gained 4.18%. Roughly 73% of the underlying constituent hedge funds for the Eurekahedge Hedge Fund Index were in positive territory this month thanks to a broad-based rally in global equity markets and an improving investor risk appetite post-Brexit. Markets were a little perturbed by a series of central bank meetings. Bund yield barely moved after the ECB meeting left current measures unchanged, signalling that investors are still anticipating another round of ECB stimulus in the coming months. Over in Japan, Abe’s latest stimulus package and the Bank of Japan’s easing expansion lead to some USD/JPY action towards the final week of July but Yen strength had little impact on the Japanese stock markets which ended the month in positive territory. While the Fed left rates unchanged at the latest July meeting, incoming macro data could put the central bank on track for its next rate hike.
Across regional mandates, Latin American managers topped the table, gaining 4.44% while relative value managers were in the lead for strategic mandates, up 2.51% during the month. Exposure into equities, precious metals and energy contributed to hedge fund performance during July. On a year-to-date basis, Latin America once again led the table, up 15.82% while distressed debt hedge funds led performance among strategic mandates, gaining 6.56% over the same period.
The Eurekahedge Hedge Fund Index gained 2.53% over the same period, with over half of managers posting positive year-to-date returns. Roughly 12% of hedge fund managers have posted year-to-date returns in excess of 10% over the past seven months, down from 16% of funds over the same period last year. One-third of these funds posting double digit gains are long/short equity mandated while another quarter of them are CTA/managed futures mandated hedge funds.
Figure 1: July 2016 and June 2016 returns across regions
All regional mandates were up in July with Latin American managers a clear lead among regional peers, gaining 4.44%, followed by Asia ex-Japan managers who were up 2.79% over the same period. North American managers grew 1.67%, followed by European and Japanese managers reporting gains of 1.39% and 1.05% respectively. On a year-to-date basis, Latin American managers lead the tables again, up 15.82% followed by North American and Asia ex-Japan managers with 3.87% and 0.48% respective gains. Lacklustre year-to-date performance for Japanese and European hedge funds saw Japanese managers posting the steepest loss of 4.21% while European managers declined 1.82%.
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