Hedge Fund Performance Commentary

The Eurekahedge Hedge Fund Index was up 0.54%1 in January 2021, outperforming the global equity market as represented by the MSCI ACWI (Local)2 which gained 0.11% over the same period. Global equities went on a roller coaster ride this month as their early gains were erased due to the turbulence of retail investment in the latter part of January. In the US, Joe Biden's inauguration as the 46th president in the US and Democrats taking control in the Senate boosted the performance of the equity market in the earlier period of the month. Investors were optimistic about the proposed domestic stimulus and shift in the foreign policy of the new administration. However, market risk sentiment rapidly changed as the clash between retail investors and notable hedge funds over GameStop stock affected investors' confidence in the stability of the market. A group of retail investors in a trading community collectively bought GameStop shares which pushed its price to an extreme level. The massive buying squeezed the position of a notable hedge fund that bet against the company, resulting in them losing more than half of their assets under management (AUM). This incident forced brokers to place trading restrictions on the stock. The US equity benchmark erased the gains they generated in the earlier part of January, with the DJIA and S&P 500 losing 2.04% and 1.11% respectively. Over in Europe, most of the equity benchmarks in the region were in negative territory, with the CAC 40 and DAX down 2.74% and 2.08% respectively. Returns were mixed across geographic mandates in January, with Asia ex-Japan and North American hedge funds gaining 2.26% and 0.69% respectively, while European hedge funds were down 0.23%. Across strategies, event driven, long/short equities and arbitrage fund managers were up 1.65%, 0.95%, and 0.74% respectively throughout the month.

Roughly 54.7% of the underlying constituents of the Eurekahedge Hedge Fund Index posted positive returns in January, and 34.1% of the hedge fund managers in the database were able to maintain double-digit returns in 2020.

Figure 1: January 2021 and December 2020 returns across regions

Figure 2 illustrates the 2020 performance of hedge fund managers across regions. All geographic mandates ended 2020 in positive territory, despite recording 7.86% losses in the first quarter. Global hedge funds registered their best nine-month run since the inception of the index as they returned 21.67% for the month ending in December. The global equity market strongly recovered from its low in March, supported by the easing economic policies, encouraging progress of vaccine development and positive geopolitical development. Asia ex-Japan hedge funds outperformed their regional peers, with their 23.02% return – followed by North American hedge funds which gained 15.22%. On the other hand, Japanese hedge funds lagged behind the group as they only returned 0.99% throughout 2020.

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1Based on 43.39% of funds which have reported January 2021 returns as at 11 February 2021
2MSCI ACWI (Local)