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Hedge funds up 1.19 per cent in October

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The hedge fund industry produced an aggregate return of 1.91 per cent in October, bringing YTD returns to near flat for 2015, but still negative at -0.80 per cent, according eVestment’s latest Hedge Fund Performance report.

The industry’s last annual decline was 2011 when average returns were -4.99 per cent and the S&P rose +2.11 per cent.
With median gross exposure increasing into the end of Q3, due to rising short exposure as long positions did not decline in-line, equity hedge funds participated in October’s market rally, however at a muted pace. Returns of 3.25 per cent from all equity strategies and 3.48 per cent from directional equity brought YTD returns to -0.17 per cent and 0.43 per cent, respectively.
Activist strategies, despite well-highlighted yet isolated declines in the group, benefited most from October’s rally and returned an average of 3.92 per cent during the month. Returns remain negative for the year, however, as aggregate declines of -3.17 per cent place them near the bottom of the industry YTD.
Sharp moves in rate, currency and commodity markets, along with the equity rally in the second half of October appear to have negatively impacted the managed futures space more broadly than any other market environments in recent months. The universe declined -0.61 per cent in October and for the first time this year, losses were generally worse among larger managers. Managed futures funds with greater than $1 billion in AUM declined -1.45 per cent in October, but still remain up for the year, +2.61. Smaller managed futures funds are -2.57 per cent in 2015.
Large global macro managers rebounded slightly in October after four consecutive months of decline, during which they lost an average of -4.08 per cent. The universe experienced meaningful redemptions in September and it will be interesting to see if prior losses effect flows going forward, or if investors are committed to sit tight.
Distressed hedge funds are in the midst of one of their worst years on record. October’s decline of -0.74 per cent was the universe’s fifth consecutive monthly decline. At -5.11 per cent for the year, distressed hedge funds are the industry’s worst performing major strategy.
Credit hedge funds snapped their four-month losing streak with an average gain of 0.87 per cent in October, led by returns from funds focused on real estate related securities and with exposure to the energy sector. Losses were still evident from certain larger products, and those focused on securitised markets with the latter’s October declines brought them negative for the year.
Commodity strategies were near flat in October, masking what was a volatile month in terms of dispersion of returns across strategies. The universe has produced highly negative average returns in 2015, -7.31 per cent YTD.
Emerging market strategies rebounded in October, led by funds focused on China’s markets. Despite October’s 3.63 per cent increase, emerging market hedge funds remain -3.18 per cent YTD through October. Despite the losses, the universe has slightly outperformed an equal weighted mix of global EM equity and debt indices (MSCI EM-GD & JPM EMBI Global).
China-focused funds’ 6.48 per cent increase in October brought YTD returns firmly into positive territory for the year, 6.02 per cent. The apparent defensive positioning which helped the universe avoid the severity of the country’s equity market losses in prior months caused the group to miss the majority of October’s large rally, however the universe still holds a significant edge YTD. The S&P China BMI remains in negative territory in 2015, despite October’s 12.47 per cent increase.
Products operating out of Hong Kong have outperformed all other regional and country specific fund domiciles in 2015, primarily due to the predominance of China-focused products. The universe has widely outperformed China- domiciled products, which in turn have still outperformed Chinese equities. 

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