Hedge funds posted the first monthly decline for 2013 in June, ending a streak of seven consecutive months of gains, the longest run of positive performance seen by the industry since 2011, according to data released by HFR.
The HFRI Fund Weighted Composite Index declined 1.3 per cent for the month, only the second decline in the trailing 13 months.
All four main HFRI Strategy Indices posted losses for June, with declines led by macro and equity hedge strategies. The HFRI Macro Index posted a decline of 1.5 per cent with negative contributions from trend following strategies, fixed income, emerging markets and commodity metals exposures. Emerging markets posted losses across equity, sovereign bond and currency markets, as US yields rose significantly for the month; HFRI Emerging Markets Index declined by 4.0 per cent, led by declines in emerging Asia and Latin America, which declined 5.7 and 5.2 per cent, respectively. The HFRI Systematic Diversified/CTA Index declined 1.8 per cent, erasing the previous YTD gain of 1.3 per cent through May. Commodity-focused strategies also declined by 1.4 per cent, while discretionary macro strategies declined 1.9 per cent.
HFRI Equity Hedge Index fell by 1.4 per cent, led by a decline of 2.7 per cent in fundamental growth strategies. However, the equity hedge sub-strategies of short bias, technology/healthcare and equity market neutral posted gains of 0.7, 0.7 and 0.4 per cent, respectively.
HFRI Event Driven Index declined 1.2 per cent in June, its first decline following 12 consecutive months of gains, with performance adversely impacted by a significant widening of high yield credit spreads, as well as equity market losses. Activist strategies posted gains which only partially offset other event Ddiven losses, while HFRI Merger Arbitrage Index posted a decline of 0.5 per cent.
Fixed income-based relative value arbitrage posted its first decline in 13 months, with the HFRI Relative Value Index declining 0.9 per cent; the HFRI RV: Multi-Strategy Index, including credit multi-strategy funds, declined 1.4 per cent, offsetting a positive contribution from yield alternative strategies, which gained 1.7 per cent. The HFRI RV: Fixed Income - Corporate Index was the weakest area of RVA sub-strategy performance, falling nearly 2.7 per cent, while the HFRI Asset Backed and Convertible Arbitrage Indices posted more moderate declines of 0.7 and 0.4 per cent, respectively.
“Risk-off sentiment dominated June hedge fund performance as investors and fund managers positioned for curtailment of stimulus efforts by the US Federal Reserve, resulting in increased volatility and pressuring emerging market, interest rate-sensitive and commodity-focused funds,” says Kenneth J. Heinz, president of HFR. “While tactical positioning and effective short hedging mitigated a portion of the losses across these areas, June performance was significant in that the trends of the previous six months across most asset classes were reversed as bond yields posted a sharp increase. Many hedge funds have and continue to be actively and conservatively positioned for the complex impacts of stimulus extraction, and investors are likely to benefit from this positioning in the second half of the year.”