Hedge funds investing in Latin America posted strong gains through mid-2016, reversing declines in four of the past five years, including the last three years, to lead all areas of hedge fund performance through the first half of 2016.
That’s according to the latest HFR Emerging Markets Hedge Fund Industry Report, which reveals that the HFRI EM: Latin America Index having surged 8.9 per cent in Q2, and added another 4.3 per cent in July.
This brings its year-to-date performance to +24.4 per cent for 2016.
Capital invested in emerging markets hedge funds rose to conclude Q2 2016 as Brexit impact, stimulus measures and currency volatility dominated global financial markets through mid-year. Emerging markets hedge fund assets increased to USD189.8 billion through mid-year, up USD4.7 billion from the prior quarter, though down USD1.5 billion from the year-end 2015 asset total of USD191.3 billion.
Total capital invested in hedge funds globally also increased through mid-year, rising to USD2.898 trillion.
Through July, the broad-based HFRI Fund Weighted Composite Index has gained 3.0 per cent YTD, while the HFRI Emerging Markets Composite Index has advanced 5.2 per cent over the same period.
The 24.4 per cent YTD gain of the HFRI EM: Latin America Index represents the strongest seven-month performance period for the index since gaining 30.4 per cent over the seven months ending October 2009. Total hedge fund capital invested in Latin America increased to USD5.9 billion, with the estimated number of funds remaining unchanged at 107.
In addition to the LatAm gains, funds investing in Russia also posted strong performance, with the HFRI EM: Russia/Eastern Europe Index advancing 5.4 per cent in 2Q16 and 14.7 per cent YTD 2016 through July. Total hedge fund capital invested in Russia/Eastern Europe increased to USD26.6 billion, an increase of over USD1.1 billion from the prior quarter, managed by over 170 funds.
Hedge funds investing in emerging Asia recovered early year losses, with the HFRI EM: Asia ex-Japan Index advancing 3.3 per cent in July and bringing YTD performance to 1.0 percent, fully recovering the 9.7 per cent decline over the first 2 month of 2016 and topping the sharp decline of 15.8 per cent for the Shanghai Composite Index. Total capital invested in emerging Asian hedge funds increased to USD48.5 billion, managed by over 520 funds.
The HFRI EM: MENA Index posted a narrow decline of 0.6 per cent in 2Q16, though the Index has declined 6.8 per cent YTD through July. Total capital invested in MENA focused hedge fund increased to nearly USD4.0 billion, managed by nearly 50 hedge funds.
“Emerging markets capital increased through mid-2016, driven by strong performance in Latin America and Russia, as energy and commodity markets recovered, currency volatility spiked, and regional EM equity markets posted solid gains,” says Kenneth J Heinz (pictured), president of HFR. “EM hedge funds have successfully navigated gains in the US Dollar, Japanese Yen, and Swiss Franc, as well as Brexit-related declines in the British Pound Sterling. With developed market rates remaining suppressed by stimulus measures through mid-year, specialised hedged EM exposures represent a compelling opportunity for global investors, benefitting from either continued low rate environment or increasing global inflation.”
