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Hedge fund managers posted minor losses in May amidst US-China trade tension

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The Eurekahedge Hedge Fund Index slumped 0.63 per cent in May as hedge fund managers struggled to generate returns during the risk-off month.

The Trump administration’s decision to raise tariffs on USD200 billion of Chinese imports signalled the escalation of the trade conflict between the US and China, leading to retaliatory tariffs from the other side. The worsening global economic outlook pushed global equities into the red for the month, as indicated by the 6.12 per cent decline posted by the MSCI ACWI (Local). 

On the other hand, the US 10-year treasury yield dipped to its lowest point in almost two years, as investors expect that the Fed will have to cut interest rates in near future. Returns were mostly negative across geographic mandates in May, with Asia ex-Japan fund managers down 1.44 per cent, and North American fund managers down 1.17 per cent. Across strategies, managers utilising equity long-bias and trend following strategies suffered the biggest losses, as the two mandates were down 3.05 per cent and 2.62 per cent respectively.

Roughly 42.3 per cent of the underlying constituents of the Eurekahedge Hedge Fund Index posted positive returns in May, and 13.9 per cent of the hedge fund managers in the database managed to maintain double-digit returns over the first five months of 2019. Looking at year-to-date performance, fund managers utilising equity long-bias strategies maintained their place at the top with 7.84 per cent gain, despite the losses they suffered this month.

The 0.63 per cent decline in May, brought hedge fund year-to-date returns to 4.41 per cent as global equity markets slumped under worsening economic outlook during the month. The MSCI ACWI (Local) was down 6.12 per cent in May but is still up 8.52 per cent for the year.

On an asset-weighted basis, hedge funds were down 1.14 per cent in May, as captured by the Mizuho Eurekahedge Hedge Fund Index (USD). The index was up 2.24 per cent year-to-date after registering a loss of 4.30 per cent throughout 2018.

The Eurekahedge North American Hedge Fund Index retreated 1.17 per cent during the month, as the return of the US-China trade tension weighed on fund managers’ performance.

The Eurekahedge Greater China Hedge Fund Index slumped 6.25 per cent in May, wiping out a significant portion of the returns they have generated over the first four months of the year. The index was up 5.43 per cent as of May 2019 year-to-date. The region’s hedge fund industry saw USD0.9 billion of net investor allocations in 2018, despite the double-digit losses posted by fund managers during the year.

The Eurekahedge CTA/Managed Futures Hedge Fund Index was down 0.44 per cent in May, reducing its year-to-date return to 2.27 per cent. Weakness in energy sector and industrial metals posed as headwinds for fund managers within the mandate, while on the other hand precious metals registered gains as the equity market volatility boosted demand for gold during the month.

Fund managers utilising AI/machine learning strategies ended May down 2.21 per cent, registering their first monthly loss in 2019. On a year-to-date basis the index was still up 1.35 per cent.

The Eurekahedge Crypto-Currency Hedge Fund Index rallied 29.02 per cent in May, boosted by the rally in crypto assets which saw Bitcoin breaching the USD8,000 level for the first time since July last year. The index was up 62.86 per cent as of May 2019 year-to-date.

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