For a second consecutive month, discretionary approaches to opportunities in corporate capital structures, including equity and credit markets, produced the best returns across the hedge fund industry in August.
eVestment’s latest hedge fund performance report reveals that overall, just 56 per cent of the industry produced gains in August, down from 80 per cent in July, which was the best month of broad returns since February 2014.
August was not nearly as beneficial to macro and managed futures funds. The vast majority of funds in both groups declined in August, leaving both lagging most of their hedge fund peers in 2016.
Investors’ allocation and redemption decisions have likely not met expectations in 2016. Event driven funds had more money removed in both 2015 and 2016 than any other primary strategy. In 2016, the group has produced leading returns, 85 per cent of managers are producing positive returns, and those with gains have returned an average of +8.12 per cent.
Managed futures funds have received more new assets in 2016 than any other primary strategy, USD16.2 billion through July. Volatility in commodity prices and volatile but range bound currency movements have been a factor causing the group to lag most other strategies this year. Four monthly losses in 2016, including a streak of three prior to the huge gains in June following the surprise Brexit vote, have begun to impact flows.
The largest gainers of new assets in the last few years prior to 2016, multi-strategy funds, have rebounded a bit since their difficult second half of 2015, which carried over into January. Since January, the universe has returned an average of +4.55 per cent. Investors, however, appear to have reacted quickly to those prior losses. In the last three months ending July, redemptions reached nearly USD10 billion from the universe.
Commodity funds had been a segment rewarding those who dared to allocate at the end of 2015 and into 2016 in the face of major losses. Despite energy commodity prices rising in August, losses across metals and agriculture sectors appeared to cause a second consecutive monthly performance decline for the group. While YTD gains within the universe are still above average in 2016, recent returns may shake the conviction of investors, eVestment says.
Distressed hedge funds produced another strong month in August. Gains of 2.18 per cent were the universe’s fourth month above the 2 per cent threshold in 2016.
It is rare within a primary strategy to see average returns so high, as varying directional and sector exposures tend to result in a dampening of gains or losses, eVestment says. Normally, this apparent unity is exhibited in emerging market country specific segments. The uniformity of returns within the distressed segment this year is further evidence of the concentration of positions, and resulting gains, in energy sector credits.
