Emerging markets hedge funds are flourishing, new industry data shows

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With hedge funds’ year-to-date returns rebounding back into double-digit territory, new industry data published on Monday shows how emerging markets managers are helping to galvanise the industry and fuel recent gains.

New research published separately by both BarclayHedge and eVestment underlines how, on a geographic basis, both emerging markets and Asia-focused hedge funds outflanked other regions to power August’s narrow return of almost 1 per cent, reversing the industry’s July slump.

BarclayHedge research shows 28 out of its overall 30 hedge fund sub-sectors scored positive performances in August, with the Emerging Markets Middle East and North Africa Index topping the table with a 3.54 per cent monthly advance.

Its Pacific Rim Equities Index meanwhile rose 3.13 per cent, while the Emerging Markets Global Equities Index gained 2.67 per cent, the EM Eastern European Equities Index added 2.33 per cent, and the EM Global Index advanced 2.08 per cent.

According to BarclayHedge numbers, the only two sub-sectors which stumbled in August were the EM Latin American Equities Index, which lost 2.33 per cent, and the EM Latin America Index, falling 1.99 per cent.

Year-to-date, BarclayHedge’s Emerging Markets Eastern European Equities Index has gained more than 22 per cent, with the Emerging Markets Eastern European Index overall up 19.30 per cent over same eight-month period.

Meanwhile, eVestment data shows hedge fund managers focused on India scored aggregated returns of 5.50 per cent last month, and are now leading the entire hedge fund pack within its database in 2021, posting year-to-date gains of more than 41 per cent.

eVestment’s stats show Africa and Middle East-focused funds have now added 17.64 per cent since the start of 2021, outflanking North America (12.96 per cent), Asia (7.98 per cent), and developed Europe (7.53 per cent) on a year-to-date basis.

Elsewhere, Japan-domiciled hedge fund firms surged 5.48 per cent during August, driving them into positive territory for the year to the tune of 2.87 per cent. Hedge funds focused on Japanese markets also posted solid gains last month at around 4 per cent.

"We have seen a return to fundamentals in some of these markets, as well as a rotation by some managers away from international to domestic stories in China which has helped local managers do well," Patrick Ghali, managing partner and co-founder of Sussex Partners, said.

"We certainly have seen an increase in investor interest not just for Asia but for hedge funds more generally, as investors worry about stretched valuations and a bull market that is getting long in the tooth."

Overall, more than two-thirds – 67.4 per cent – of all hedge fund managers notched up positive returns last month, according to eVestment’s August data, the largest such number in three months.

BarclayHedge, eVestment and Hedge Fund Research numbers each show overall industry returns for 2021 now stand at around 10 per cent, as managers rapidly close in on 2020’s overall full-year returns of 12 per cent.

“August hedge fund performance was interesting for its relative low dispersion of returns,” said Peter Laurelli, eVestment’s global head of research.

“The average of the positive return during the month was not great, 1.97 per cent, the second lowest level of 2021, but the average loss was not tremendous either at -1.79 per cent,” Laurelli said. “The differential between average gains and average losses is the narrowest in over two years, since July 2019.”

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Hugh Leask
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