The Eurekahedge December report on hedge funds reveals that over November 2016 hedge funds were up 3.53 per cent for the year, posting better performance compared to a modest 1.73 per cent gain over the last year.
The asset base for the industry contracted USD10.4 billion in 2016, on the back of steep redemption pressure with net outflows totalling USD28.2 billion for the year, Eurekahedge writes.
Almost 13 per cent of billion dollar hedge funds posted double-digit gains in 2016, compared to 8 per cent in 2015. Among the sub-billion dollar hedge funds, almost 20 per cent returned double-digit performance compared with 17 per cent in 2015.
While billion dollar hedge funds have seen their asset base decline by USD32.3 billion in 2016, their smaller peers, the sub-billion dollar funds have seen their combined AUM grow by USD21.9 billion. In particular, funds in the USD250 to USD500 million AUM bracket have seen investor subscriptions of USD8.8 billion, up from USD5.1 billion the year before.
Relative value mandated hedge funds posted the best growth in assets, expanding close to 20 per cent for the year, with underlying relative value volatility hedge funds posting impressive gains of 7.18 per cent in 2016. More details on volatility-focused hedge funds are available here.
CTA/managed futures mandated hedge funds have attracted USD11.5 billion in capital this year despite mixed returns among its sub-strategies with commodity focused managers gaining 7.72 per cent for the year, outperforming trend-following and FX-focused managers which declined 1.68 per cent and 2.60 per cent for the year respectively.
European hedge funds have fared the worst among regional mandates witnessing their AUM decline by USD21.6 billion in 2016. Liquidations have also outpaced launches in the European hedge fund space consistently for the past seven quarters with 569 fund shutting down since 2015.
Hedge funds were up 0.41 per cent during the month of November, with 2016 year-to-date returns coming in at 3.53 per cent. Meanwhile, underlying markets as represented by the MSCI AC World Index (Local) gained 2.88 per cent in November with its 2016 year-to-date returns at 4.88 per cent.
Roughly 56 per cent of underlying constituent funds for the Eurekahedge Hedge Fund Index were in positive territory this month, with majority of them being long/short equities mandated. North American hedge fund managers posted the best returns among regional peers this month, with gains of 2.28 per cent while among strategic mandates, event driven hedge funds led the tables with gains of 1.85 per cent.
Eurekahedge writes: “We believe that 2017 will hold more volatility in store for the markets. While the Trump driven reflation theme could be a positive driver for the US economy, it is too early to discount the damage to the US and world economy from his protectionist trade views. Further a strengthening USD will act as another check on the recovery within the US economy and it is very likely that the Fed might be able to slot only one rate hike in 2017 once the euphoria around Trumponomics is grounded.
“The Eurozone will be another source of anxiety for the markets, where a fledgling economic recovery, a possibly (relatively) painless recovery for the UK post-Brexit and the social tensions arising from immigration would embolden and tilt the odds in favour of Euro-sceptics. Across emerging markets, uncertainty arising from Trump’s anti-trade rhetoric coupled with the capital outflows could impact growth. The question remains while Trump moves to America first, will the US Fed follow suit or continue to act as the world’s central bank?"
Performance across regional mandates was a mixed bag during the month, with North American managers leading the tables, gaining 2.28 per cent, as manager performance was propped up by the strength of underlying equity markets post-Trump victory with the S&P 500 climbing 3.42 per cent in November. Japanese hedge fund managers also posted positive performance with gains of 1.16 per cent during the month. The USD regained its strength after the initial shock on an unexpected Trump victory as well as a hawkish Fed signalling a chance of a December rate hike. This lead to the weakening of the Yen and a stronger performance of Japanese equity markets with the Nikkei 225 Index gaining 5.07 per cent during the month. On the other hand, Latin America, Asia ex-Japan and European hedge fund managers languished into negative territory this month, down 3.09 per cent, 1.07 per cent and 0.45 per cent respectively.
On a year-to-date basis, Latin American hedge funds led the tables, growing an impressive 17.88 per cent over the past 11 months thanks to the performance of underlying equity markets and the recovery of oil prices. Brazil's Ibovespa Index gained 42.81 per cent over the same period, allowing managers to profit from their long books throughout the year. North American mandated hedge funds also posted good year-to-date gains, up 7.17 per cent, followed by Asia ex-Japan mandated hedge funds which gained 0.74 per cent over the same period. On the other hand, European and Japanese hedge fund managers fell into negative territory, declining 1.31 per cent and 0.19 per cent respectively year-to-date.