Hedge funds face tough month in June amid trend reversals and shifts in risk sentiment
Hedge funds witnessed a flat to slightly negative performance in June amid reversals in market trends. The Eurekahedge Hedge Fund Index was down 0.19%1 during the month, bringing its June year-to-date performance to 1.33%. In comparison the MSCI World Index was up 3.65%2.
Key highlights for June 2012:
Hedge funds posted negative returns for the fourth consecutive month in June, the longest losing streak since 2008.
North American fixed income and relative value hedge funds gained 3.71% and 3.40% respectively in June.
The Mizuho-Eurekahedge Long Short Equities Index was up 1.10% in June, showing that larger funds outperformed their peers.
Hedge funds down 2.4% in 2Q-2012, making it the worst second quarter on record for the industry
Eurekahedge Fund of
Eurekahedge (Long-Only) Absolute Return Fund Index
June proved to be a tough month for hedge fund managers with frequent trend reversals and shifts in risk sentiment making it a difficult environment to operate in. The first half of the month witnessed positive movements in the markets amid expectations of stimulus by the US Federal Reserve and the election of pro-bailout parties in Greece. The second half of the month witnessed an increase in risk aversion amid concerns about Spanish banks, but positive developments at the EU summit led to a month-end rally.
Eurekahedge North American Hedge Fund Index
Eurekahedge European Hedge Fund Index
Eurekahedge Eastern Europe & Russia Hedge Fund Index
Eurekahedge Japan Hedge Fund Index
Eurekahedge Emerging Markets Hedge Fund Index
Eurekahedge Asia ex-Japan Hedge Fund Index
Eurekahedge Latin American Hedge Fund Index
Hedge funds under-performed the markets during June, with most losses coming from trend-following strategies with global mandates. Most regional hedge funds delivered positive returns, with managers investing in Eastern Europe and Russia posting the largest gains. The Eurekahedge Eastern Europe & Russia Hedge Fund Index was up 3.83% in June, while the RTS Stock Index gained a strong 8.70%, following a sharp rally on the last trading day of the month. North American and Japanese hedge funds also witnessed positive returns of 0.77% and 2.15% respectively, with most managers gaining from currency exposures and long positions in equity indices and financial stocks. European and Asia ex-Japan hedge funds witnessed losses of 0.15% and 0.43% respectively as many managers had been positioned for greater declines in the markets.
Most strategies posted marginally positive returns in June with relative value and fixed income hedge funds delivering the highest returns. The Eurekahedge Relative Value Hedge Fund Index increased 1.85% as market neutral and mean reversion trades locked in profits for the managers. Macroeconomic uncertainty and recession in European economies helped fixed income hedge funds, which averaged gains of 1.18%. Distressed debt managers were down 0.38% for the month even as US high yields and leveraged loans gained through the month. The frequent changes in market sentiment due to Spain’s request for financial support and concerns over global growth made it difficult for trend-following managers to navigate successfully through the month. After an excellent performance last month, CTA/Managed futures hedge funds dropped 2.09% in June.