Eurekahedge Hedge Fund Index Books Fifth Straight Gain in July

Aug 11 2016 | 4:49pm ET

Hedge funds posted their fifth consecutive month of gains in July, according to a flash update of the Eurekahedge Hedge Fund Index, as managers capitalized on a return to risk-on stances in equity and debt markets following Britain’s Brexit. 

Eureka’s Hedge Fund Index gained 1.52% for the month, expanding its year-to-date return to 2.55%. Underlying markets as represented by the MSCI World Index (Local) were up 4.18%. Approximately 73% of the underlying constituent hedge funds for the index were in positive territory in July thanks to a broad-based global equity market rally and an improving investor risk appetite post-Brexit. 

Latin American managers led performance among regional mandates this month, Eurekahedge said in a statement, and were up 4.30% while relative value managers topped the table across strategies, gaining 2.92% over the same period.

As of 2016 year-to-date, over half of managers have posted positive year-to-date returns. Roughly 12% of hedge fund managers have posted year-to-date returns in excess of 10% over the past seven months, down from 16% of funds over the same period last year. One-third of these funds posting double digit gains are long/short equity mandated while another quarter of them are CTA/managed futures mandated hedge funds.

Other key highlights from Eurekahedge’s July 2016 flash report:

  • Long only absolute return strategies are up 6.17% year-to-date, ahead of underlying markets as represented by the MSCI World Index which have gained 2.69%. 
  • Funds of hedge funds are down 1.02% as of 2016 year-to-date, following small gains of 0.41% and 3.53% in AY 2015 and 2014, respectively. Investors have redeemed $17.4 billion from funds of hedge funds as of 2016 year-to-date, following $52.7 billion of redemptions in the previous year.
  • Among developed mandates, North American hedge fund managers were up 1.78%, followed by European and Japanese managers who were up 1.41% and 1% respectively. On a year-to-date basis, North American hedge fund managers gained 4%, while their European and Japanese counterparts were in the red with losses of 1.81% and 4.26% respectively. 
  • The Eurekahedge Relative Value Hedge Fund Index posted the best returns among strategic mandates in July and was up 2.92% during the month as exposure into some energy and consumer names boosted returns for relative value managers.  Managers also posted impressive year-to-date gains, up 5.31% while those trading volatility also posted impressive gains of 5.43% year-to-date. 
  • Long/short equities hedge funds were up 2.32% in July, with equity long bias hedge funds posting an impressive 3.75% increase, boosted by the broad-based rally in the global equity markets during the month. 
  • Latin American long/short equities hedge funds posted the best year-to-date gains, up 19.45% while Japanese long/short equities hedge funds fared the worst, down 3.82% over the year. 
  • Asia ex-Japan hedge fund managers gained 2.78% during the month and 0.47% year-to-date. Underlying Greater China hedge funds grew by 1.44% in July but lost 4.85% year-to-date, though outperforming the CSI 300 Index, which fell 14.13% over the same period.
  • On a year-to-date basis, emerging market-focused hedge funds feature strongly with Latin American managers gaining 15.67% followed by Eastern Europe & Russia managers with year-to-date gains of 8.92%. On the flip side, Japan dedicated managers have been the worst performers for the year, with the Eurekahedge Japan Hedge Fund Index down 4.26% year-to-date. 
  • 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.
  • All strategic mandates were in positive territory during the month with relative value managers leading the table, gaining 2.92% as exposure into some energy and consumer discretionary names boosted returns for managers. 
  • Following steep losses of 4.43% in 2015, distressed debt investing hedge funds lead the strategy tables in 2016 with gains of 6.56% as commodity prices have recovered and positions acquired at steep discounts last year have started to post gains. Relative value managers also reported positive year-to-date gains, up 5.31%, as the current uncertainty and a relatively active M&A scene have given managers ample opportunities to take advantage of price dislocations in underlying assets. 
  • Event driven and CTA/managed futures hedge funds also posted strong year-to-date figures, up 5% and 4.22% respectively.

Eurekahedge’s update was based on 42.42% of funds that have reported June 2016 returns as at 10 August 2016. The company tracks asset flows, hedge fund performance and regional key trends across the hedge fund universe, tracking more than 130 data points on more than 24,000 alternative funds in its database.

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