Research

Hedge Fund Performance Commentary

Introduction

The Eurekahedge Hedge Fund Index kicked off the year with a solid showing, as it gained 2.32% in January1, in contrast to how the index declined 4.08% last year, following five consecutive months of losses. Dovish stance exhibited by the Federal Reserve signalled higher level of flexibility in future rate changes, and together with greater optimism over trade talk progresses between the United States and China they supported the global equity market performance throughout the month. The MSCI AC World Index (Local) gained 7.36% during January, despite the economic slowdown concerns revolving around China, as indicated by the contraction in manufacturing sector and dwindling exports. Improving outlook over global trade and weaker US dollar supported the performance of fund managers focusing on Asia and emerging markets during the month, with the Eurekahedge Asian Hedge Fund Index and Eurekahedge Emerging Markets Hedge Fund Index edging 2.00% and 4.40% higher respectively.

Preliminary figures showed that 73.8% of the hedge fund managers tracked by Eurekahedge posted positive returns in January, as opposed to how barely 35.5% of these managers avoided losing money in December last year. Managers utilising event driven and long/short equities strategies were best positioned to benefit from the upward movement in both equity and bond markets during the month. The two strategic mandates were up 4.35% and 3.77% respectively over the month, while on the other end of the spectrum CTA/managed futures hedge funds were down 0.39% despite the strong recovery seen in energy and industrial metal sectors.

All major geographic mandates posted positive returns in January, with North American hedge fund managers up 3.79%, as the underlying equity markets recovered from the losses they suffered back in December. The Eurekahedge Japan Hedge Fund Index and the Eurekahedge Asia ex Japan Hedge Fund Index were up 1.65% and 2.50% respectively, as the region’s equity markets rallied on the Fed’s dovish tone and hopes over the US-China trade talks.

Figure 1: January 2019 and December 2018 returns across regions
 

Looking at returns throughout 2018, Japan and Asia ex-Japan mandates suffered the steepest losses thanks to the tariff spat between the US and China and the Fed’s aggressive rate hikes. The two mandates were down 9.57% and 9.56% respectively in 2018. Despite the robust performance of North American fund managers over the second and third quarters of the year, the mandate still ended the year down 2.92% as the equity market sell-offs in October and December wiped a significant portion of the managers’ return over the preceding months.

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Footnote
1Based on 49.86% of funds which have reported January 2019 returns as at 14 February 2019.

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