Research

Hedge Fund Performance Commentary

Introduction

Hedge funds ended their four month losing streak, gaining 1.33% in October as most major equity markets ended the month in positive territory. Underlying markets as represented by the MSCI World Index posted strong gains during the month, up 7.22%. Central bank policies remained divergent with the European Central Bank (ECB) and the Bank of Japan (BoJ) rather dovish, reiterating their intent to meet inflation targets as part of their broader strategy to support growth in their respective economies. On the other hand, the Fed appears to be hinting at a long overdue rate hike in December which seems likely given the encouraging employment numbers coming out from the US as well as the stabilising outlook overseas - mainly China which appears to have weathered the worst for the moment.

Asia on the whole was the best performing regional mandate with Asia ex-Japan leading the table, followed closely by Japan. Asian equity markets ended the month in positive territory with the CSI 300 Index up 10.34% largely on the back of accommodative Chinese central bank policy despite soft macroeconomic data out of China. The Nikkei 225 and Hang Seng Indexes were also up during the month, gaining 9.75% and 8.60% respectively. Most Asian currencies were down against the greenback as the Fed proved to be hawkish on a 2015 rate hike. The Japanese yen proved to be an exception having gained 0.60% against the dollar during the month.

Among strategic mandates, CTA/managed futures hedge funds posted the steepest decline during the month as markets swung into positive territory. Funds with short positions in stock indices futures realised losses during the month, much to the detriment of a majority of trend-following CTA/managed futures hedge funds. On the other hand, event driven hedge funds performed the best among all strategic mandates due to an increase in corporate activity and acquisition volumes. Long/short equity hedge funds followed closely behind, largely on the back of good equity market performance during the month. While the markets caught some by surprise this month, it seems that investor sentiments have turned optimistic following rather encouraging central bank commentary, market buzz created by third quarter corporate earnings, and most notably the upswing in global equities. An interesting year-end lies ahead.

Figure 1: September and October 2015 returns across regions
 

 

October proved to be a good month for hedge funds, with all regional mandates in positive territory. Asia ex-Japan focused hedge funds led the table with gains of 3.46% in October followed by Japanese managers, up 2.17% during the month. While PMI data from China and Japan remain soft and economic growth was rather flat, largely accommodative central bank policies continued to drive optimism in the Asian market. While the BoJ remains dovish, the Bank has communicated its intent in achieving its inflation target.

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