Hedge funds’ returns more than doubled from Q1 to Q2, as commodities-focused managers powered ahead on the back of the spring oil price surge, and larger funds’ gains outweighed smaller funds’ performance, new analysis by hedge fund asset administrator Citco shows.
Hedge funds’ weighted average returns swelled from 2.75 per cent in the first three months of 2021 to some 6 per cent between April and June, according to Citco Fund Services’ latest ‘2021 Q2 Hedge Fund Report’.
More hedge funds ended the second quarter in positive territory, with 82 per cent of managers scoring a positive annual return in Q2, against 73.4 per cent in the previous three-month period.
Citco, which has some USD1.6 trillion in assets under administration, noted that all hedge fund strategy classes recorded positive returns in the three-month period to the end of June.
Commodities hedge funds led the way with an 8.33 per cent Q2 return, followed by multi-strategy managers, which added 7.04 per cent, and equities-based strategies, which were up 6.62 per cent.
Meanwhile, the biggest managers performed the best, with those funds running USD3 billion-plus in assets up 7.69 per cent, compared with USD1-3 billion managers, who gained 4.78 per cent. Funds managing between USD500 million to USD1 billion returned 5.12 per cent, while those with USD200-500 million were up 2.81 per cent.
Citco’s quarterly report examined industry performance, trading volumes and investor flows, among other things.
The research found that trade volumes rose by 3.5 per cent in May, and were up 12.9 per cent compared to May 2020, while June volumes were up 4.5 per cent over the prior month. Overall, the study observed 8.5 per cent higher year-to-date volumes in June 2021 compared to the same period in 2020.
The study also zeroed in on the strong correlation between market volatility and trade volumes. The VIX averaged 31.9 in June 2020, having been much higher earlier in Q2 that year. In contrast, volatility levels stood at 16.95 in June 2021, the closest yet to pre-pandemic levels. As a result, the contrasting market environments translated into the use of “very distinct asset classes”.
The trading of equity swaps was up 44 per cent in Q2 this year against Q2 2020, interest rate swap volumes were the highest on record at the end of Q2, and June saw increased use of swaptions, bank debts and currency futures.
Citco, which provides asset servicing solutions to the global hedge fund and alternative investment industry, recorded some USD50.5 billion of gross subscriptions during Q2, against USD41.8 billion of redemptions, yielding net inflows of USD8.7 billion.
That, Citco said, represents a “strong vote of confidence in the resurgent attractiveness of alternatives as an asset class”.
Multi-strategy, global macro, private equity hybrids and fund of funds mopped up the bulk of those allocations, while equities and arbitrage-based funds registered net outflows. Asia-based managers recorded outflows, while North American and European funds added to their coffers.
