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Hedge funds outperform underlying markets, up 1.12% in April

Tuesday, May 10, 2016
Opalesque Industry Update - Hedge funds outperformed underlying markets during the month, and were up 1.12%1 in April while underlying markets as represented by the MSCI World Index ended the month up 0.67%. Emerging market managers continued to perform well during the month supported by resilient oil and commodity prices which are helping to inject some investor optimism. A confluence of factors has helped oil gain some support despite ineffective talks between OPEC members while rather encouraging Chinese macro data and stimulus measures have also aided in providing a better outlook for the Chinese economy, resulting in the climb in prices across the commodity space.

However, subsequent improvements in US GDP figures, an uptick in the US dollar (which has depreciated against most developed and emerging market currency pairs) and oversupply in the oil market vis a vis build up in US inventories and the Iranian factor, could potentially upset the delicate balance that has materialised over the past few months in the markets. Barring any formal agreement between OPEC and non-OPEC members, oil could yet again drive the markets lower.

Below are the key highlights for the month:

Hedge funds were up 1.12% during the month, and 0.62% year-to-date. In April, Latin American mandates contributed to strong gains for managers, up 4.17%. On a year-to-date basis, Latin American mandated hedge funds were up 9.87% - their best year-to-date returns over the past 10 years.

Distressed debt hedge funds posted the best returns during the month of 1.83% as higher oil and commodity prices lent some support to the valuations of managers窶・underlying assets.

Japan mandated hedge funds were the worst performers during the month, down 1.53% and 4.31% year-to-date as the Bank of Japan decided to hold policy steady for the moment.

Among developed market mandates, North American and European managers grew by 1.51% and 0.45% respectively, while Japanese managers lost 1.53%.

Emerging market managers posted their second consecutive month of gains, up 2.57% as underlying Eastern Europe & Russia and Latin America mandated hedge funds jumped 3.42% and 4.17% respectively in April.

The Eurekahedge Asia ex-Japan Hedge Funds Index was up 1.28% in April. Greater China hedge funds, a heavyweight of the index declined 0.34% during the month while India focused managers were up 1.89%. On a year-to-date basis, 63% of Asian managers are in the red this year, compared with only 16% over the same period last year.

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