The Eurekahedge Hedge Fund Index gained 1.35% in March, supported by the robust performance of the S&P 500 which returned 3.58% over the same period. Global equity markets plummeted over the first half of March as the escalating Russia-Ukraine conflict elicited severe economic sanctions on Russia from the US and their allies in a bid to cripple the Russian economy and war effort. The Russian economy has been devastated by the crippling sanctions, with half of the Russian central bank’s US$640 billion in reserves frozen and foreign companies operating in Russia shutting down their operations, leading to rising unemployment and economic hardship. The conflict has led to a surge in commodity prices, with the S&P Goldman Sachs Commodity Index up 9.63% in March, driven mainly by the sharp rise in energy and crude oil prices. To take the edge off rising prices, the US Federal Reserve raised policy rates by 25bps for the first time in March, with a possibility of six more rates hikes later this year. Consequently, the US 10-year treasury yield rose 52 bp to 2.35%, the highest level since April 2019. Russia and Ukraine have since conducted several rounds of peace negotiations which have been unsuccessful thus far but gives hope that Putin will finally seek a negotiated end to his invasion. Over in Europe, returns were mixed among equity benchmarks in the region with the Euro Stoxx 50 down -0.55% while the RTS Stock Index gained 9.00% after the Russian central bank raised interest rates to 20 per cent and implemented draconian capital controls to crimp the flow of funds out of Russia which stabilised the value of the rouble and enabled a 29.5% recovery. Returns were mixed across geographic mandates in March, with the Latin American mandate taking the lead with a return of 3.59% while the Asia ex-Japan mandate trailed behind their peers with a return of -1.40%. Across strategies, the CTA/Managed Futures mandate performed the best with a return of 4.59% while the arbitrage mandate trailed behind their peers with a return of -1.16%.
Roughly 61.8% of the underlying constituents of the Eurekahedge Hedge Fund Index posted positive returns in March, and 76.1% of the hedge fund managers in the database were able to outperform the S&P 500 over the first three months of the year.
Figure 1: March 2022 and February 2022 returns across regions
Figure 2 illustrates the 2022 performance of hedge fund managers across regions. As of March year-to-date, most of the geographic mandates have recorded negative returns with Latin America the only exception. Despite returning 1.35% in March 2022, global hedge funds were unable to fully recover the losses incurred in January and February and ended the first quarter with a March year-to-date return of -0.69%. Latin America performed the best with a March year-to-date return of 5.70%, supported by the strong gains of the equity markets in the region, with the Brazil IBOVESPA and IPC Mexico gaining 14.48% and 6.13% respectively. On the other end of the spectrum, Asia ex-Japan hedge funds lagged the group with a return of -5.34% as Asian equities faced headwinds from a resurgence of COVID-19 cases in China which led to the reimposition of harsh lockdown measures in several major Chinese cities.
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