Research

Hedge Fund Performance Commentary

Introduction

Hedge funds rebounded from the prior two months’ losses, finishing the month up 1.46%1, underperforming underlying markets as the MSCI World Index2 gained 2.34%. Global equity markets extended their rally into November after the previous month’s v-shaped recovery, with investors piling back into risky assets as October’s fall was seen as a healthy correction after a lengthy period of rising prices. Investors remained in a buoyant mood about the markets, evidenced by the CBOE VIX Index falling 4.99% during the month, with strong gains in developed economies as well as emerging Asia. The Bank of Japan (BoJ) and the European Central Bank remains firm in their stance towards combating inflation, with the People’s Bank of China also lowering interest rates in November for the first time since 2012. Falling oil prices continued to make headlines during the month, with the OPEC’s decision not to cut oil production catalysing a further fall in energy prices and creating an uphill battle for European and Japanese policy makers trying to combat deflation. On the whole, as oil prices continue to fall and inflation expectations remain subdued, the much anticipated hike in global interest rates is likely to be pushed further down the road - much to the benefit of equities in the developed world.

Figure 1: November and December 2014 returns across regions
 

Japan and Asia ex-Japan managers were the best performers during the month, returning 1.05% and 1.03% respectively. Chinese equities were a major winning theme during the month as the China CSI Index soared a further 25.81%, lifted by investor optimism as last month’s interest rates cuts by the People’s Bank of China and additional liquidity from the Shanghai-Hong Kong stock connect carried markets higher. North American funds were also up 0.55% as the economy expanded at a higher-than-expected annualised rate of 5.0% in the third quarter even while unemployment rates continue to fall. On the other hand, European funds slipped 0.15% in December as markets in the EU have struggled in the face of a near-zero growth outlook and declining demographics. Investor risk aversion reached a peak during the month as the political situation in Greece pointed towards the resurgent possibility of a Greek exit from the Eurozone, sending markets tumbling. Mangers investing with a Latin American mandate were the worst performers, losing 1.49% in the final month of the year, negatively impacted by the broad sell-off in commodities and local currencies as the MSCI Latin America Index3dropped 5.82%.

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Footnote

1 Based on 52.46% of funds which have reported December 2014 returns as at 15 January 2015

2MSCI AC World Index(Local)

3MSCI EM Latin America Index IMI (Local)

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