Stocks and crypto fuel emerging market hedge fund gains, as assets hit record highs

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Hedge funds that trade emerging markets advanced almost 6 per cent in the first four months of the year, with China, India and Middle East specialist managers leading the pack, as gains from regional equities and cryptocurrencies drove profits in early 2021. 

Emerging market hedge funds - as measured by Hedge Fund Research’s Emerging Markets (Total) Index – surged 5.92 per cent over the four-month period. The strong start to the year continues the sector’s commendable 2020 run, which saw EM managers deliver annual returns of 12.68 per cent on average. 

India-focused strategies generated an 11.46 per cent return in the four months to the end of April, while other HFR indices measuring China, Asia (ex-Japan), Russia and Eastern Europe, and MENA all scored gains of more than 7 per cent over the same period. Only Latin America-focused funds ended the period in negative territory, down 0.93 per cent between January and April. 

Sectorally, successful calls on commodities, regional equities, fixed income, currencies and cryptocurrencies have powered returns for EM and Asian hedge funds amid the tentative global economic recovery, said HFR president Kenneth Heinz. 

The recent strong performance is mirrored by EM managers’ mushrooming asset base. HFR data shows total emerging market hedge fund assets swelled to a record total of USD264.8 billion during Q1, an US8 billion rise from the end of 2020.  

Expectations are now high for further accelerated growth, Heinz noted, as institutions scope out opportunities in the post-pandemic environment. Emerging ideas and themes run across event driven, macro, and cryptocurrency strategies, he explained, pointing to inflation/interest rate sensitivity, SPACs, M&A, and supply chain