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Hedge funds limit losses in June as markets continue to fall

Hedge funds as measured by the Greenwich Global Hedge Fund Index cut net exposures and limited the losses experienced by markets in June. 

The index shed 0.84 per cent compared to losses of 5.23 per cent by the S&P 500 Total Return, 3.56 per cent by the MSCI World Equity and 5.23 per cent by the FTSE 100. 

Forty two per cent of constituent funds in the Greenwich Global Hedge Fund Index ended the month with gains.

Market neutral funds posted a modest loss in June, falling 0.33 per cent on average as funds showed mixed results among strategies.

The event driven sector lost 0.38 per cent, as distressed and special situations managers declined by 0.26 per cent and 1.29 per cent, respectively. Merger arbitrage funds by contrast gained 70 bps.

Equity market neutral funds suffered as a result of the market volatility, declining 0.96 per cent. Arbitrage strategies also experienced mixed results, with managers on average losing 23 basis points. Convertible arbitrage funds treaded water in June, losing 0.01 per cent while fixed income arbitrage funds gained 1.06 per cent. Finally, other arbitrage strategies lost 91 basis points on average.

Long/short equity managers suffered the greatest losses among hedge funds for the second month in a row as global equity markets weakened in June. The Greenwich Global Long/Short Equity Index fell by 1.57 per cent, almost one third the decline of the S&P 500 during the month. Growth-based funds performed slightly better than value funds, losing 1.54 per cent and 1.69 per cent, respectively. Opportunistic managers lost 3.72 per cent while short biased funds capitalised on the drop in equities, gaining 4.40 per cent.

Directional trading funds posted some of the better results in June, relatively speaking. CTA and futures managers lost 15 basis points on the month as trend-following models fared better than last month. Macro funds exhibited mixed results but lost 0.30 per cent on average.

One particular bright spot in the month of June was the Greenwich Long-Short Credit Index which rose by 88 basis points. Year-to-date, it remains the best performing strategy group among hedge funds with a return of 5.28 per cent. Multi-strategy funds moved lower by 76 basis points, slightly outperforming the index for the month.
On a regional basis, emerging market hedge funds performed slightly better than developed market funds on average, with managers losing 72 and 88 basis points, respectively. In developed markets, funds investing in North America fell the most (1.40 per cent) as a result of weak US equities.

Developed market Asian funds followed behind, dropping nearly one per cent during the month. European funds and managers investing in global developed markets fared slightly better, declining 0.60 per cent and 0.49 per cent, respectively.

Emerging market hedge funds showed mixed results with most managers moving marginally lower during the month. Asian emerging market funds were the best performing group, gaining 0.14 per cent on average. European emerging market managers were not as fortunate as they bore the brunt of the global flight to quality, declining 3.34 per cent. Latin American funds experienced a modest loss of 13 basis points.

“Although June was less painful than May for global equity markets, it confirmed the risk of a lacklustre economic recovery,” says Clint Binkley, senior vice president. “The fraction of the losses in hedge funds as compared to global equity returns indicates the decline in net exposure among managers over the past two months. Sentiment among sophisticated investors is clearly becoming more bearish. Fund managers are doing their best to mitigate market risk and wait for more positive economic indicators.”

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