March was the best month for aggregate hedge fund performance in two years and some segments, notably activist, credit and emerging markets funds, performed extremely well, according to eVestment’s latest Hedge Fund Industry Performance Report.
For the quarter, overall industry returns were negative, the industry’s first negative Q1 since 2009 and only its second on record.
Activist hedge funds produced their best monthly performance in March since 2010. Gains from the concentrated, equity/capital structure-focused funds of +5.35 per cent were enough to bring Q1 2016 into positive territory. Activist managers have been through a difficult stretch, declining an average of over 8 per cent in the last nine months.
Credit hedge funds sharply rebounded from a prolonged drawdown to return an average of +3.47 per cent in March. March returns were the best for credit funds since September 2009.
Prior to March, credit hedge funds had declined -8.14 per cent during this drawdown, which has lasted twenty months, and lost nearly 7 per cent in the last eight months. During the Financial Crisis, credit fund’s losses were larger, -12.74 per cent, yet occurred in a five- month span. The difficulties credit strategies have faced in recent months have been significant, and rival their most difficult period on record.
Managed futures strategies saw a sharp turn in performance in March. Average returns of -1.76 per cent bely the prevalence of large losses during the month. Over 70 per cent of systematic managed futures funds declined in March with average losses of -4.26 per cent. There were several directional shifts in currency pairs during the month, however, the largest influence likely came from the sharply higher move in oil prices.
Commodity hedge funds, which have enjoyed a return of positive investor sentiment in recent months, were firmly up in March, returning an average of +1.38 per cent. Q1 returns of +1.64 per cent put the universe ahead of most market segments for 2016, except FX and financial derivatives where most managed futures funds operate.
Nearly 70 per cent of hedge funds produced positive returns in March. The average increase of +4.61 per cent was the largest in more than two years. The differential between average gains and losses (-2.92 per cent) of 753 basis points is also one of the largest in many years, rivaled recently only by the distribution of returns in January. This all illustrates the fact the industry is operating in a highly volatile set of markets, and in doing so, producing a wide dispersion of returns. For the year, 52 per cent of the industry is positive with average gains of +4.77 per cent.
