The average return of the global hedge fund industry was pulled into negative territory in February as markets experienced sharp reversals, with trend following CTA/managed futures and long/short equities strategies lagging behind the pack.
That’s according to the latest figures from Eurekahedge which reveal that the Eurekahedge Hedge Fund Index was down 1.64 per cent in February as volatility levels spiked across the board and unravelled the volatility risk premium trade. Despite steep losses during the month, hedge funds have protected on the downside and managed to outperform underlying markets as the MSCI AC World Index (Local) declined 3.68 per cent in February.
Returns were largely negative across the board with all key regional mandates in the red during the month. Asia ex-Japan mandated funds delivered the worst returns, down 2.11 per cent followed by North American and Japanese mandated hedge funds with losses of 1.34 per cent and 1.23 per cent respectively. Among strategies, distressed debt hedge funds posted the best gain, up 0.81 per cent (largely due to idiosyncratic factors - exposure to Puerto Rican debt) while CTA/managed futures posted the steepest loss, down 4.49 per cent.
Eurekahedge says that trading conditions are likely to remain choppy for the rest of the year with VIX levels still elevated from their all-time lows.
The company writes: “While the market consensus appears to be favouring an aggressive rate hiking cycle in the US and an overall tapering in global liquidity conditions as the Fed and ECB normalise interest rate policy, it is perhaps too soon to write off the doves in the US Fed. Headwinds to global growth from a trade war, as well as tariffs feeding into the US inflationary cycle in an adverse way would make it much more difficult for the Fed to normalise policy without rocking the boat too much – and by most counts, February was just the teaser.”
CTA/managed futures hedge funds posted their worst monthly return on record, down 4.49 per cent in February with underlying trend following and commodity focused strategies declining 7.85 per cent and 1.27 per cent - upending the gains posted by dedicated FX focused strategies which were up 1.26 per cent during the month.
Among developed market mandates, North American managers posted the steepest losses during the month, down 1.34 per cent followed by Japanese and European managers which posted losses of 1.23 per cent and 0.73 per cent respectively.
The Eurekahedge Billion Dollar Hedge Fund Index which tracks the performance of the hedge fund industry heavy weights was down 1.96 per cent in February, their steepest monthly loss on record since the infamous May 2010 flash crash when billion dollar hedge funds lost 2.01 per cent.
Asia ex-Japan mandated hedge funds posted the steepest decline among regional mandates during the month, down 2.11 per cent with underlying Greater China hedge fund managers down 3.05 per cent. Long/short equity funds focused on the region declined 3.41 per cent as Chinese equity markets came under pressure during the month led by weaknesses in the ‘financials’ sector.
The CBOE Eurekahedge Short Volatility Hedge Fund Index declined 3.90 per cent in February based on early numbers, with asset weighted losses for the index coming in at 8.65 per cent and expected to increase as the complete picture emerges. Meanwhile, tail risk and long volatility focused strategies are up 6.16 per cent and 0.90 per cent on an asset weighted basis.
The Eurekahedge Crypto-Currency Hedge Fund Index declined 16.83 per cent in February, bringing its year-to-date losses to 24.36 per cent, barely ahead of the 26 per cent decline in the price of Bitcoin in the first two months of 2018.
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