Hedge funds see second consecutive month of average performance decline

Hedge funds continued to face a difficult market environment in October as for a second consecutive month the majority of funds saw performance declines. 

The average return in the hedge fund industry came in at -0.21 per cent in October. The tough first quarter of the year leading up to the global pandemic and the past two months have left the industry at a just-barely-positive +0.74 per cent return year to date (YTD). This is a stark contrast to the +10.05 per cent return the industry put up for all of 2019.

 
Only about 47 per cent of hedge funds produced positive results in October, and there weren’t any exceptional groups of performance winners or losers among the fund categories eVestment tracks. A reader would have to drill down to the subcategories of Equity-Financials (+2.95 per cent in October) and Equity-Healthcare (+2.23 per cent on October) to find a group of funds with what could be characterised as impressive returns last month.
 
However, eVestment Global Head of Research Peter Laurelli notes that October’s results highlight the importance of due diligence and fund selection as, in spite of unimpressive average performance figures in October and YTD, many funds are doing quite well and making their investors very happy.
 
“Hedge fund performance is a difficult topic to apply broad statements of success or underperformance,” Laurelli says. “Within every strategy there are managers at either end of the spectrum. The most important takeaway for investors is to understand why for each individual manager their approach and methodologies are either working, or not, in the current environment and whether that result is a near-term aberration or longer-term issue with how those philosophies fit into current market dynamics.”
 
While China-focused funds only put up average performance of +0.21 per cent in October, these funds are leading the industry YTD with average performance of +18.45 per cent. At the other end of the spectrum, Brazil-focused funds are seeing the worst YTD performance among fund types eVestment tracks, at -24.90 per cent, with these funds turning in average performance of -2.82 per cent in October. Not since 2015, when funds Brazil-focused declined an average of more than -30 per cent, has eVestment data showed this magnitude of difference.

Among primary hedge fund strategies eVestment tracks, just under half – Event Driven-Activist, Multi-Strategy Credit, Distressed, Convertible Arbitrage, Relative Value Credit and Event Driven – turned in positive average performance for October, but none reached +1 per cent. The highest concentration of positive performing strategies YTD has been within Convertible Arbitrage with 80 per cent of reporting funds posting positive performance and the segment sitting at +6.65 per cent YTD.

Equity-Technology funds are the strongest performers YTD among sub-sector exposures eVestment tracks. While these funds’ average performance in October was only +0.60 per cent, their YTD average performance stands at +13.75 per cent. On the other hand, among sub-sectors, while Equity-Financials funds posted a decent +2.95 per cent average performance in October, they are in the red at -13.30 per cent for the year.