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Equity exposure supported hedge fund returns in May

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The hedge fund industry produced an aggregate return of 0.35 per cent in May, lifting YTD returns to +3.36 per cent, compared to the S&P 500 which increased +1.29 per cent in May and is +3.24 per cent YTD, according to eVestment

Managed futures funds posted their second consecutive monthly loss in May, falling -0.23 per cent. The strategy’s two- month draw down comes after a five-month string of gains which saw the universe produce cumulative returns of nearly six percent. A strong USD and declining oil prices, the two major and dominant trends likely adding to prior gains, have both since been on hold. The universe is no longer among the leading performers for 2015. 

Large managed futures strategies, which have been the primary beneficiaries of investor interest returning to the segment in 2015, posted smaller declines than their smaller peers in May. Returns from funds with >USD1 billion in AUM were -0.06 per cent during the month, while smaller managers declined -0.14 per cent. While not a large difference, this is a reversal of the breakdown of April’s declines where large managed futures funds produced much larger losses. However, they also produced much higher gains when the currency and commodity price trends were at their strongest. 

Global macro funds also appeared effected by the pause in currency and commodity trends in May, but were able to remain near flat, +0.05 per cent during the month. Similar to their managed futures peers, large macro funds seemed more apt at altering positions in the shifting environment and were able to outperform smaller macro funds during the month, +0.17 per cent and -0.01 per cent, respectively. 

Activist funds have had a decent four-month stretch after a difficult start to 2015 and returned +1.12 per cent in May. Since February, the activist hedge fund universe has produced average returns of +6.02 per cent , leaving them +3.38 per cent for the year, slightly outperforming the S&P 500. 

The volatility of returns from credit strategies has died down since the turn of the year, but returns remain mixed and losses apparent. The largest losses in May came from funds focused on sovereign debt and European credits. The rapid reversal and rise of German bund, and corporate credit yields across Europe, have likely played a role in credit strategies’ mixed returns. Despite losses, investors have continued to allocate to credit strategies in 2015, showing confidence in the level of opportunities being created around the world. 

Emerging markets continue to provide a diverse set opportunities for hedge funds. China-focused funds are up nearly 26 per cent YTD, while Brazil funds are down more than 13 per cent. Russia has been extremely volatile, impacted by commodity and geopolitical risks, but funds in the region are up nearly 26 per cent as well. 

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