Hedge funds declined 0.48 per cent in October – their first monthly loss after seven straight months of gains, according to the latest figures released by EurekaHedge.
Despite being in the red this month, hedge funds have outperformed underlying markets, with the MSCI AC World Index (Local) down 1.38 per cent in October.
On a year-to-date basis, hedge funds were up 2.85 per cent with roughly 20 per cent of managers posting double digit returns compared with 15 per cent over the same period last year.
While the US Presidential Elections loomed in the background, markets moved in the rhythm of a series of economic data releases as well as central bank meetings this month. The rate hike action from the Federal Reserve seems quite likely as strong US macro data and a hawkish Fed set the stage for tapering in December though the outcome of the Presidential Elections is yet to be seen.
Performance across regional mandates was mixed during October with Latin American managers leading the table, up 4.07 per cent as manager performance was propped up by the strength in underlying equity markets in Latin America. Japanese managers also had an impressive month, gaining 2.28 per cent, followed by Asia ex-Japan hedge fund managers with a modest 0.08 per cent over the same period.
Solid US macro data and a hawkish Fed lent some support to the USD, which gained against major Asian currencies. The Nikkei 225 Index grew close to 6 per cent on the back of a weaker yen. European hedge fund managers ended the month in negative territory, down 0.19 per cent while North American managers posted the steepest decline among regional mandates, losing 0.61 per cent in October. Although showing some slack in performance, North American hedge fund managers outperformed the MSCI North America AC Index (Local) which fell 2.84 per cent over the same period.
On a year-to-date basis, Latin American hedge funds led the tables with gains of 22.05 per cent as the stabilisation in oil and commodity prices throughout the year supported the valuations of underlying Latin American stocks, allowing managers to profit from their long books. Latin American managers have handsomely outperformed underlying emerging markets, represented by the MSCI Emerging Markets Index IMI (Local), which gained 8.66 per cent over the past 10 months. North American hedge funds were also up year-to-date, gaining 4.73 per cent, followed by Asia ex-Japan hedge fund managers who posted year-to-date gains of 2.35 per cent. On the other hand, European and Japanese hedge fund managers fell in negative territory with Japanese managers posting the steepest decline, down 0.92 per cent while European hedge fund managers declined 0.65 per cent year-to-date respectively.
The asset weighted Mizuho-Eurekahedge Index was down 0.39 per cent in October. It should also be noted that the Mizuho-Eurekahedge Index is US dollar denominated, and during months of strong US dollar gains, the index results include the currency conversion loss for funds that are denominated in other currencies. The US Dollar Index gained 3.12 per cent in October.
Performance was mixed across the board among the suite of Mizuho-Eurekahedge Indices with the Mizuho-Eurekahedge Multi-Strategy Index posting the best gains, up 2.69 per cent during the month. This is followed by the Mizuho-Eurekahedge Emerging Markets Index which gained 2.27 per cent over the same period. The Mizuho-Eurekahedge Top 100 Index was also up with 0.22 per cent gains while the Mizuho-Eurekahedge Asia Pacific Index declined 0.10 per cent over the same period.The Mizuho-Eurekahedge Long/Short Equities Index also languished in October,losing 1.31 per cent. As at 2016 year-to-date, the Mizuho-Eurekahedge Emerging Markets Index led the table, up 16.04 per cent while the Mizuho-Eurekahedge Long/Short Equities Index posted the steepest decline, losing 0.44 per cent over the same period.
The CBOE Eurekahedge Volatility Indexes comprise four equally-weighted volatility indices – long volatility, short volatility, relative value and tail risk. The CBOE Eurekahedge Long Volatility Index is designed to track the performance of underlying hedge fund managers who take a net long view on implied volatility with a goal of positive absolute return. In contrast, the CBOE Eurekahedge Short Volatility Index tracks the performance of underlying hedge fund managers who take a net short view on implied volatility with a goal of positive absolute return. This strategy often involves the selling of options to take advantage of the discrepancies in current implied volatility versus expectations of subsequent implied or realised volatility. The CBOE Eurekahedge Relative Value Volatility Index on the other hand measures the performance of underlying hedge fund managers that trade relative value or opportunistic volatility strategies. Managers utilising this strategy can pursue long, short or neutral views on volatility with a goal of positive absolute return. Meanwhile, the CBOE Eurekahedge Tail Risk Index tracks the performance of underlying hedge fund managers that specifically seek to achieve capital appreciation during periods of extreme market stress.
During the month of October, the CBOE Eurekahedge Long Volatility Hedge Fund Index led the table with gains of 1.87 per cent, followed by the CBOE Eurekahedge Short Volatility Hedge Fund Index and CBOE Eurekahedge Relative Value Hedge Fund Index which gained 1.26 per cent and 0.36 per cent respectively. On the other hand, the CBOE Tail Risk Volatility Hedge Fund Index fell into negative territory, down 2.94 per cent this month. It should be observed though that tail risk and long volatility strategies are designed to deliver outsized returns during periods of extreme market volatility thereby providing overall portfolio level protection, hence losses can be expected during normal market conditions.
On a year-to-date basis, the CBOE Eurekahedge Relative Value Volatility Hedge Fund Index posted the best gains, up 7.19 per cent. This is followed by the CBOE Eurekahedge Short Volatility Index which gained 2.84 per cent over the same period. On the other hand, the CBOE Eurekahedge Tail Risk Hedge Fund Index posted the steepest decline, down 14.23 per cent followed by the CBOE Eurekahedge Long Volatility Index with a modest decline of 0.04 per cent over the past 10 months
