Research

Hedge Fund Performance Commentary

Introduction

Hedge funds fell into negative territory this month — down 1.81%1, though comfortably outperforming underlying markets as the MSCI World Index2 lost 6.66%. Equity markets were down across the board this month with Chinese equity markets posting double-digit losses in the aftermath of the Chinese stock market correction. Disappointing macroeconomic data from China pointed towards a less optimistic outlook for Asia Pacific’s largest economy despite aggressive government intervention to ensure the country’s liquidity cushion is maintained. Fears of a financial contagion led equity markets down this month as investors were wary of a spill over from China’s volatile markets. North American, European, Japanese and Latin American equity markets registered losses during the month while Chinese stock markets were the worst casualties of the August equity sell-off. Meanwhile, mixed market data from the US together with comments from some Fed committee members seem to have pointed towards a possibility of the September rate hike; however, with the events happening in China, the Fed seems to remain dovish on its hike timing. The market this year has been rather eventful with Greece taking up much of the market’s attention during the earlier part of the year, while China’s equity markets witnessed sharp rise before giving back all of their gains for the year. Diverging monetary policy stance of major world economies saw some interesting trends in investor sentiments while the markets see-sawed as macroeconomic data from economic powerhouses were disappointing or mixed at best. The Chinese government intervened heavily as warning signals pointed towards a potential correction in its stock market with the devaluation of the Yuan causing further panic in the markets over fears of currency war. Fortunately, central bankers were able to agree on refraining from competitive currency devaluation during the recent G-20 Summit in the hopes of a more optimistic global economic outlook.

Figure 1: July and August 2015 returns across regions
 

 

All regional mandates fell into negative territory this month as global uncertainty added to investor nervousness however, Japanese managers were the best performing mandate among all regions, declining 0.35% while still outperforming underlying equity markets – the Nikkei 225 and the Tokyo Topix lost 8.23% and 7.38% respectively. Similarly, European managers, though down 1.38% during the month also outperformed underlying equity markets – the DAX and EuroStoxx 50 were down 9.28% and 9.19% respectively. North American mandated funds also outperformed the S&P 500 by 4.11% despite posting negative losses this month. While Asia ex-Japan dedicated hedge funds posted the worst returns among all regional mandates - down 5.12%, managers nonetheless outperformed underlying markets as the MSCI Asia Pacific ex Japan Index3 were down 8.53%.

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Footnote

1Based on 52.28% of funds which have reported August 2015 returns as at 14 September 2015

2MSCI AC World (Local)

3MSCI Asia ex Japan Index (Local)

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