LatAM and Russia hedge funds lead HFRI gains

Hedge funds investing in Russian and Latin American Emerging Markets (EM) have posted strong gains through early 2016, leading performance through April, as global and EM equity, commodity and currency markets surged in recent weeks following steep losses to begin the year. 

The HFRI EM: Latin America Index leads all areas of hedge fund performance for 2016 with a gain of +15.3 per cent through April, according to the latest HFR Emerging Markets Hedge Fund Industry Report, released today by HFR®, the established global leader in the indexation, analysis and research of the global hedge fund industry.

Recent gains for the LatAm Index are encouraging for investors in what has been a challenging regional area of performance in recent years. The Index fell -20.9 per cent in 2015 and has declined in four of the past five calendar years, though the March 2016 gain of +10.0 per cent was the highest monthly gain since April 2003. The HFRI Emerging Markets (Total) Index, which includes globally-based EM funds, has advanced +1.7 per cent YTD through April, with gains in Russia and LatAm partially offset by declines in Emerging Asia and MENA.

Hedge funds investing in Russia have also posted strong gains for 2016, with the HFRI EM: Russia/E Europe Index gaining +12.2 per cent through April, trailing only the LatAm Index as the best area of hedge fund performance YTD. In contrast to the LatAm Index, the historically volatile Russia Index added +5.5 per cent in 2015 and has posted gains in five of the prior seven calendar years.

Total hedge fund capital invested in Emerging Markets globally declined to USD185.1 billion (1.21 trillion RMB, 12.3 trillion RBL, 661 billion BRL, 218.7 trillion Dinar, 12.4 trillion Rupee) as of the end of the first quarter, falling from USD191.3 billion at year-end 2015 and a record of USD198.2 billion as of 2Q 2015. Capital invested in Latin American-focused hedge funds fell to USD5.4 billion, while assets invested in Russian-focused hedge funds fell to USD25.6 billion.

Hedge funds investing in Emerging Asia have outperformed volatile regional Asian equity markets, while total capital invested in Emerging Asia hedge funds has declined to USD48.7 billion as of 1Q16. The HFRI EM: Asia ex-Japan Index declined -2.8 per cent YTD through April, while the HFRI EM: China Index fell -5.9 per cent; however, each of these has topped the decline of the Shanghai Composite Index by 1400 and 1100 basis points, respectively, through April. Similarly, the HFRI EM: MENA Index has declined -3.4 per cent YTD through April, this after posting a narrow gain of +0.6 per cent for 2015.

“Emerging markets hedge fund performance has surged in recent months, led by funds with exposures to Latin America and Russia, driving the strongest monthly performance gains in over a decade, as commodities and regional equities recovered from steep early year losses,” says Kenneth J Heinz (pictured), President of HFR. “At present, the emerging markets environment provides tremendous opportunities, which come with high structural risks appropriate for the most sophisticated, specialised and regionally knowledgeable investment managers. As inflationary pressures develop in coming months, Emerging Market hedge funds represent an ideal investment vehicle to access such opportunities with these likely to attract high quality, long-term institutional investors.”