eVestment: Activist, Distressed Strategies Lead July Hedge Fund Gains

Aug 10 2016 | 9:12pm ET

Last month’s $20.7 billion in hedge fund redemptions last month may have been premature given a rebound in performance in July, according to the latest edition of eVestment’s Hedge Fund Performance Report. 

The company’s Hedge Fund Aggregate measure gained +1.89% during the month, which brought year-to-date returns to +3.29%. 

Concentrated equity-focused exposures benefitted the most from the improved environment, eVestment’s research revealed most, but gains were prevalent across the industry. Hedge funds produced their most broadly positive month since February 2014, with 79% of all funds posting gains. 

Several strategies had zero constituents declining in July, and only one segment had fewer than half of its funds produce gains. Commodity-focused funds, a favorite for investors so far in 2016, were the only segment where losses were concentrated. 

Event driven funds have had more money removed than any strategy following less than stellar returns in 2015, the company said, but for those who have remained, 2016 has been a much better year; the broad event driven universe gained an average of +1.96% in July and is +3.84% YTD. Funds with under $1 billion in AUM are at +4.57% YTD.

Other key highlights from eVestment’s report:

  • Activist managers have generally done very well this year, despite some high profile outliers. Activist strategies were at +3.82% in July and with YTD returns averaging +5.04%, are among industry leaders in 2016.
  • Distressed hedge funds produced another strong month in July, returning +2.89%, which brings YTD returns to +6.26%, the highest among any primary strategy. The segment’s outsized gains have been partly generated by the ongoing rebound/ opportunities in energy sector credits. 
  • After broadly excelling in the post-BREXIT volatility, dispersion within managed futures resulted muted but positive July returns. The average gain of +0.92% for $1 billion+ managers was their lowest absolute gain/loss in the last 14 months, but also incorporates a greater dispersion of returns in July than in prior months.  
  • Discretionary macro hedge funds again showed greater dispersion of returns than most other strategies in July, reflecting the variety of views among managers. The overall macro universe returned 0.86% during the month, with larger macro funds performing slightly better. 
  • Should the trend of BRL/USD strength continue, Brazil-focused managers are on pace for their best year on record since 2009, and third best since 1999. Gains thus far from 2016 have a long way to go to recapture losses from the prior three years, but for investors with the foresight to recognize a shift of the multi-year currency trend, 2016 has been an excellent year for investors in Brazil. 
  • With the exception of the seven month span from August 2015 to February 2016, when securitized credit funds declined -2.46%, the universe has been one of the most consistently positive over the last several years. Since February, the universe has produced an average return near 5%, after another positive month in July, +0.99%.
  • Hedge funds focused on energy companies’ capital structure, primarily equities, were able to perform well in the declining energy commodity price environment in July. The universe outperformed the S&P Energy Sector during the month, which was -1.93%. 

  • China funds, which are still experiencing redemption pressures, albeit to a lesser degree each of the last three months, experienced a much needed rebound in July, returning +3.10%. The universe remains negative for the year. 

Atlanta-based eVestment was founded in 2000 by Jim Minnick, Matt Crisp and Heath Wilson. The company boasts one of the largest, most comprehensive global databases of traditional and alternative strategies and provides institutional investment data intelligence and analytic solutions to clients worldwide.

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