The hedge fund industry produced an aggregate return of -1.20 per cent in September, dropping YTD returns further into negative territory for 2015, -2.35 per cent, according to eVestment’s latest Hedge Fund Performance Monthly 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.
For many in the hedge fund industry, 2015 is shaping up as the worst year since 2011, if not since 2008. One primary difference between 2015 and 2011 is many major markets produced positive returns in 2011, more so on the credit side, and the hedge fund industry was generally perceived to have lagged significantly. In 2015 the industry is mostly outperforming equity, multi-asset, commodity and regional/country specific indices.
Systematic, or quantitative strategies performed well during September’s global volatility. Most interesting was the performance of those focused on equity markets, given declines seen following the US Fed meeting mid- month. Quantitative equity strategies returned an average of 0.58 per cent in September and were down only slightly in Q3, -0.39 per cent, while the S&P 500 and MSCI were -6.44 per cent and -8.45 per cent in Q3, respectively.
After four down months in the last five, managed futures funds, heavily populated with systematic strategies, gained +1.01 per cent in September, ending Q3 only -0.26 per cent. The difference between large and smaller managed futures funds has been significant in 2015. Those with greater than USD1 billion in AUM entering 2015 returned an average of +2.53 per cent in September, +3.62 per cent in Q3 and +4.40 per cent YTD, while their smaller peers returned +0.80 per cent. -0.54 per cent and -1.59 per cent in the same periods.
Through the end of Q3, event driven returns are on pace for their worst year since 2008, having eclipsed 2011 losses of -3.90 per cent. Event driven funds fell an additional – 2.53 per cent in September, bringing YTD returns to -4.15 per cent. The group declined -20.48 per cent in 2008, but bounced back with +30.35 per cent in 2009 and +11.78 per cent in 2010.
Activist fund returns have been increasingly negative in each of the last four months, having declined an average of -10.92 per cent during this stretch. Losses in September of -5.06 per cent are the largest since September 2011. Activist funds went on to return -4.26 per cent in 2011, followed by 14 per cent in 2012 and 20 per cent in 2013.
Credit strategies posted their fourth consecutive aggregate decline in September, with losses accelerating in each of the last two months. In the last twelve months, credit funds have declined -3.82 per cent and experienced nine monthly declines. Larger funds continue to mitigate losses more effectively than their smaller peers, returning -2.60 per cent in Q3 and -1.00 per cent YTD compared to -3.34 per cent and -2.64 per cent, respectively. However, the securitised sector continues to be a standout in 2015.
Emerging market strategies’ brutal Q3 ended with the group falling -1.57 per cent in September and -9.51 per cent for the quarter. Losses were greatest from exposure to Brazil as the universe of funds targeting the country declined 22.21 per cent in the third quarter. Brazil funds sit -31.58 per cent through Q3 2015 which, barring a significant rebound, would be the universe’s worst year on record since the launch of eVestment’s coverage of a Brazil universe in 1998. Their prior worst year was 2008, declining and average of -22.49 per cent.
Hedge funds focused on Chinese markets posted slight gains in September and again outperformed the country’s equity indices significantly. In Q3, China-focused funds declined an average of -16.03 per cent while the S&P China index declined -24.35 per cent. For the year, funds investing in China are slightly positive, +1.02 per cent, while the S&P index has fallen -12.65 per cent.
Managers domiciled in Hong Kong continue to produce returns well above average in 2015, +6.68 per cent. Hong Kong based strategies are a mix of mostly China-focused funds, with other major global strategies.