eVestment: Hedge Fund Aggregate Gains 0.73% as Activist, Distressed Strategies Lead

Oct 12 2016 | 9:47pm ET

Performance trends in place within the hedge fund industry since early summer mostly continued in September, according to eVestment’s latest Hedge Fund Performance Report, backed by higher energy and agriculture commodity prices and a positive tendency among developed equity markets.

The company’s Hedge Fund Aggregate gained +0.73% in September, bringing Q3 and YTD returns to +2.91% and +4.40%, respectively. 

For a third consecutive month, discretionary approaches to opportunities in corporate capital structures, including equity and credit markets, produced the best returns across the hedge fund industry, eVestment said, while September marked the eight consecutive positive month for aggregate hedge fund returns. Volatility of returns, or the difference between average positive and average negative returns, was the lowest in at least four years. 

Activist funds won the quarter at +4.87% and distressed funds won in YTD returns among major strategies with +7.99% returns, the company said. For the month, origination & financing funds (+1.65%), activist funds (+1.29%), distressed funds and long/short equity funds (both at +1.05%) turned in the strongest performances.

Other key points from eVestment’s September report:

  • Distressed funds have again produced a strong month of aggregate returns on the strength of a recovering oil price. Q3 returns of +4.81% and YTD returns of +7.99% place the strategy at the top of the table so far in 2016. The inverse relationship between energy credit default risk and distressed hedge fund returns has been evident since late-2014, in that as default risk increased or decreased, distressed hedge fund performance tended to fall, then rise, respectively. 
  • The managed futures segment may be facing a difficult stretch for investor flows in Q4. The universe accepted more money than any other through August, and its asset collection was behind only multi-strategy managers in 2015. September and Q3 performance trailed the industry, and several large funds are in the midst of a difficult stretch.
  • Macro hedge fund performance was similarly distributed to managed futures in September, with basically half posting gains versus losses. However, the universe produced slightly positive returns at +0.16% for the month and +2.41% YTD. The distribution of returns is highly indicative of the differing thematic views, and their market influences, across the predominantly discretionary group. To say the universe is underperforming would clearly overlook the many large macro strategies that are outperforming even the distressed and activist universes.
  • Commodity funds enjoyed a welcome reprieve from a two-month, 2% slide. The rebound in agricultural commodity prices, along with rising energy prices, were the primary cause for universally positive returns in the segment.
  • Brazil fund returns cooled off a bit in September, coming in just positive at +0.21% for the month, but they ended Q3 +6.88% as the universe continues to be the best performing segment of the hedge fund industry so far in 2016. The YTD return of Brazil funds stands at a staggering +36.54%.
  • Funds investing in Russia also continued to perform well in September, resulting in Q3 returns over 10% and YTD returns of more than 20%. The universe still lags Brazil-focused funds in 2016, but have outperformed all emerging markets over the combined 2015/2016 period. Russia-focused funds have shown a history of either leading, or trailing all other segments of the industry.  
  • China funds’ rebound also continued in September, resulting in strong Q3 returns. However, the positive run recently has not been enough – yet – to offset the large losses from January. Flows for China funds, at least through August, do not yet illustrate a willingness among investors to return to China-focused exposure.

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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