Research

Hedge Fund Performance Commentary

Introduction

2015 did not end with much pomp and circumstance and was a challenging year for managers. Hedge funds ended 2015 on a low note with the Eurekahedge Hedge Fund Index down 0.70% in December, while the MSCI World Index declined 2.23% during the month. Overall for 2015, hedge funds were up 1.45% (their lowest annual return on record since 2011) amid a challenging market environment. Meanwhile underlying markets as represented by the MSCI World Index ended the year in the red, down 0.48%. On the back of ongoing macroeconomic themes, central bank policy has been dominating the news for the year with assurances on achieving the inflation target, yet looking back; the stimulus doled out by central banks worldwide was rather prudent – mildly extending the asset purchase program with its intensity mismatched to that expected by investors such as that in Europe. Disappointing ECB announcement in early December saw several reversals in the equity markets especially in Europe, making trading conditions somewhat choppy throughout the month - investors have also unwound their German bund holdings, thus seeing a spike in its yield. Losses were also extended throughout European equities as well as in the US and Japan. The long-awaited increase in interest rate in the US finally happened, sending a brief rally in US equity markets before they fell, ending the month in the red. Over in Asia, the equity market in mainland China performed well on the basis of several measures by Chinese regulators to curb the decline of the stock market, however the recovery has been short-lived as the events in early January have shown - the Chinese markets are still not out of the woods.

Figure 1: November and December 2015 returns across regions
 

 

Key trading themes during the month puts a spotlight on currencies, equities and fixed income to which hedge funds saw significant drag on performance. Across regional mandates, Asia ex-Japan hedge funds have also been performing well despite the global market lethargy, with some hedge funds posting gains from arbitraging opportunities present in the Chinese markets. Though Asia ex-Japan hedge funds were up 8.23% year-to-date, on the other hand, the performance of North American hedge funds was rather disappointing – losing 0.55% year-to-date, its worst annual return since 2008. All strategic mandates were down in December with CTA/managed futures hedge funds registering steep declines as hedge funds with exposure to European and North American equity futures as well as the euro/US dollar pair saw heavy losses following what was deemed by the markets as inadequate policy response by the ECB earlier in December.

The performance of regional mandates was mixed this month with Asia ex-Japan and Japan focused hedge funds leading the table with gains of 1.45% and 0.27% respectively. The performance for European managers was flat in December, while North American and Latin American focused hedge funds fell into negative territory during the month losing 0.94% and 0.56% respectively. Global equity markets performed poorly with the exception of the Mainland China. Losses were registered across all regions except for Mainland China and Australia/New Zealand equity markets.

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Footnote

1Based on 41.72% of funds which have reported November 2015 returns as at 10 December 2015

2MSCI AC World Index All Core (Local)

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