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Hedge funds decline in June as uncertainty rises

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Hedge funds posted declines in June as Chinese equities fell sharply and uncertainty over the outcome of the Greece referendum contributed to losses in quantitative, trend-following, Macro CTA strategies, according to HFR.

The HFRI Fund Weighted Composite Index declined -1.3 per cent in June, the worst monthly decline since June 2013, paring gains for 1H15 to +2.4 per cent.  Despite the June decline, the 1H15 HFRI gain still outperformed US equities as measured by the S&P 500 by over 200 basis points.

Macro hedge fund strategies led declines for the month, with losses across equity and currency exposures contributing to a decline of -2.4 per cent for the HFRI Macro Index, the worst monthly performance since July 2008. The declines for Macro strategies represent a reversal from recent strength in Macro & CTA strategies, which led all strategies in 2014 and over the trailing 12-month period, with gains of +5.6 per cent and +7.4 per cent, respectively; the June decline brings performance for 2015 for Macro strategies to a decline of -0.4 per cent.  Macro losses were led by CTA strategies, with the HFRI Macro: Systematic Diversified/CTA Index falling -3.5 per cent, the worst decline since May 2011. The HFRI Macro: Discretionary Thematic Index fell -0.7 per cent, while the HFRI Commodity Index posted a partially offsetting gain of +0.7 per cent for the month.

The HFRI Equity Hedge Index declined by -0.8 per cent for the month, paring the strong 1H15 gain for the Index to +4.1 per cent, with declines led by Growth and Chinese exposures. The HFRI China Index posted a decline of -3.5 per cent for the month, paring the 1H15 gain for the Index to +18.9 per cent. Similarly, Fundamental Growth strategies also contributed to June declines, with the HFRI EH: Fundamental Growth Index falling -1.3 per cent, paring 1H15 gains to +4.4 per cent. Partially offsetting these, the HFRI EH: Technology/Healthcare Index gained +0.4 per cent for June; the Index leads all sub-strategies for 2015 with a gain of +8.3 per cent. The HFRI: EH: Short Bias Indices posted a narrow gain of +0.3 per cent for the month, while the HFRI Emerging Markets Index fell -1.7 per cent.

Event Driven strategies also declined in June, with the HFRI Event Driven Index falling  -0.8 per cent; for 1H15, the Index has gained +3.1 per cent. June ED losses were led by HFRI ED: Distressed and HFRI ED: Activist Indices, which declined -1.5 and -1.1 per cent, respectively, for the month. For 1H15, ED sub-strategy performance was led by Activist funds, which gained +5.6 per cent.

Relative Value Arbitrage strategies fell for the month as bond yields increased and deal spreads widened, with the HFRI Relative Value Arbitrage Index declining -1.0 per cent, bringing 1H15 performance to +2.2 per cent. Credit Multi-Strategies led June RV sub-strategy declines with the HFRI RV: Multi-Strategy Index falling -1.7 per cent. Partially offsetting June losses, the HFRI RV: Asset Backed Index posted a gain of +0.3 per cent. For the 1H15, RV sub-strategy performance was led by Volatility strategies, with the HFRI RV: Volatility Index gaining +4.8 per cent, despite a decline of -0.7 per cent for June.

“Increased financial market volatility and reversals of many of the performance trends from the first half of 2015 resulted in declines across many areas of hedge fund performance to conclude the month of June, with an increased focus on hedge fund exposure to and positioning in Chinese and Greek/European equities, Oil and Euro currency,” says Kenneth J Heinz (pictured), President of HFR. “While each of these remains an active and fluid financial market consideration in the short term, hedge fund performance across Equity, Event Driven and Arbitrage concluded 1H15 with outperformance of US equities, highlighting an important performance inflection point. As recent macroeconomic uncertainty develops and evolves in coming months, hedge fund investors are likely to continue to benefit from sophisticated, non-directional and low beta exposures to many powerful, complex and diverse trends in 2H15.”

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