Hedge funds up 0.90 per cent in November, says Eurekahedge

The Eurekahedge Hedge Fund Index was up 0.90 per cent in November, supported by the market's optimism towards the progress of the US-China trade talks, according to the December 2019 Eurekahedge Report.

The underlying equity market as represented by the MSCI ACWI (Local) gained 2.76 per cent over the same period. US equity markets recorded new all-time highs during the month, as a result of the strong corporate earnings combined with the positive geopolitical development. European equities also pushed higher as Germany narrowly avoided recession, defying market expectations. The CAC40 and DAX gained 3.06 per cent and 2.87 per cent over the month. Over in Asia, the enactment of the Hong Kong Human Rights and Democracy Act was seen as a possible headwind against the progress of the ongoing US-China trade negotiations, weighing on the region's risk outlook. Meanwhile, the wait-and-see approach of the Fed and the ECB towards their policies pushed the yields of the sovereign bonds higher during the month, resulting in the weakness of the government bond market.

Approximately 63.1 per cent of the underlying constituents of the Eurekahedge Hedge Fund Index posted positive returns in October, and 30.1 per cent of the fund managers in the database were able to generate double-digit returns over the first 10 months of the year. Returns were positive across regions, with Asia ex-Japan fund managers up 2.36 per cent, thanks to the positive development of the US-China trade negotiations. Fund managers focusing on North America returned 0.45 per cent, supported by the Fed's rate cut. Looking at year-to-date performance, Asia ex-Japan hedge funds have returned 9.74 per cent, ahead of their North American peers who were up 6.26 per cent over the first 10 months of 2019.

Supported by the strong performance of the global equity and bond markets, all regional mandates were up for the year, with Latin American hedge funds leading the pack with their 10.42 per cent return. On the other end, fund managers focusing on Japan have returned 5.24 per cent year-to-date, trailing behind the other regional mandates.

The asset-weighted Mizuho-Eurekahedge Index - USD was up 0.62 per cent in November, after ending 2018 down 4.30 per cent. 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.

Most of the Mizuho-Eurekahedge indices posted positive returns in November, with the Mizuho-Eurekahedge Multi-Strategy Index gaining 1.32 per cent over the month. In terms of year-to-date return, all of the Mizuho-Eurekahedge indices were in positive territory, with managers focusing on Asia Pacific generating the strongest returns of 6.72 per cent return as of November 2019.

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.

The CBOE volatility indices posted mixed returns in November. The CBOE Eurekahedge Short Volatility Hedge Fund Index topped the chart with its 1.09 per cent return, thanks to the suppressed market volatility throughout the month. On a year-to-date basis, long volatility hedge fund managers were down 10.10 per cent, placing them last among the four volatility strategy categories.