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HFRI Fund Weighted Composite Index down -0.62% in July (+2.47% YTD)

Friday, August 08, 2014
Opalesque Industry Update - Emerging Markets and Macro: Multi-Strategy hedge funds posted gains in July as equity and credit markets pulled back from record highs into month end, Argentina defaulted on its outstanding bonds, the Federal Reserve continued to taper stimulus measures and commodities recorded steep losses.

The HFRI Fund Weighted Composite Index declined -0.6 percent for the month as strong, negatively-correlated contributions from EM and Macro Multi-Strat strategies failed to offset weakness in equity strategies, as reported today by HFR, the established global leader in the indexation, analysis and research of the global hedge fund industry.

The HFRI Emerging Markets Index added +0.85 percent in July, the 3rd consecutive monthly gain, with contributions from Emerging Asia and the Middle East. The HFRI EM: Asia: ex-Japan Index climbed +2.5 percent, while the HFRI MENA Index gained +3.3 percent. The HFRI Macro: Multi-Strategy Index gained +0.5 percent in July, also the 3rd consecutive month of positive returns, as contributions from Currency, Fixed Income and short exposure to equities, high yield credit and commodities all contributed to the negatively-correlated gains; HFRI Currency Index gained +0.6 with contributions from long US dollar exposure.

The HFRI Macro (Total) Index fell -0.7 percent for the month, as gains in multi-strategy funds were offset by declines in quantitative, trend-following and thematic strategies. The HFRI Macro: Systematic Diversified Index also fell -0.7 percent, as many trading models re-calibrated trends and positions based on intra-month reversals, while the HFRI Macro: Commodity Index declined by -1.7 percent.

Fixed income-based Relative Value Arbitrage strategies posted a narrow decline of -0.09 percent in July, showing little impact as Argentina defaulted on its sovereign debt; gains in Asset Backed exposures were offset by declined in Fixed Income: Corporate and Yield Alternative strategies. The HFRI RV: Asset Backed Index added +0.9 percent in July, the 32nd gain in the past 33 months, which extended YTD gains to +6.9 percent. The HFRI RV: Convertible Arbitrage climbed +0.1 percent, the 24th gain in the past 26 months.

Event Driven strategies posted a decline for the month, with the HFRI Event Driven Index falling -0.4 percent, paring YTD gains to +3.9 percent, as weakness in underlying exposures offset gains in equity and high yield credit hedges. The HFRI ED: Special Situations Index declined -0.3 percent for the month; while the HFRI ED: Distressed Index declined -0.8 percent in July, paring YTD gains to +4.6 percent, still the leading ED sub-strategy YTD.

The HFRI Equity Hedge Index declined -0.8 percent for the month, paring its YTD gain to +2.35 percent with weakness concentrated in Technology and Energy sub-strategies. The HFRI EH: Energy/Basic Materials Index fell -3.75 percent for July, the 3rd monthly decline in the past 13 months, paring YTD gains to +7.7 percent, which still leads all EH sub-strategies. The HFRI EH: Technology/Healthcare Index lost -1.45 percent for the month, paring its YTD gain to +2.1 percent. Growth strategies saw nearly offsetting gains and losses of mixed exposure to Europe and Emerging Markets, with the HFRI EH: Fundamental Growth Index posting a decline of -0.16 percent.

"Emerging Markets, Macro Multi and Currency hedge funds have effectively navigated the fluid macroeconomic environment in recent months as many positive beta trends have deteriorated or reversed, producing attractive, negatively correlated gains through global equity pullback, high yield credit widening and the systemic shock of a sovereign default," stated Kenneth J. Heinz, President of HFR. "After months of historical lows through improving economic outlooks, volatility experienced a key technical reversal into month end which was captured by many currency and fixed income focused Macro funds. Exhibiting volatility positive positioning, EM, Multi-Strat and Currency funds are likely to contribute to overall industry gains in 2H14 and deliver important, uncorrelated returns for investors regardless of the prevailing economic trends/environment."
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