Industry Updates

Hedge funds gain 0.42% in May with 48% of managers in the red year-to-date

Wednesday, June 15, 2016

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Opalesque Industry Update - Hedge funds were up 0.42% in May while underlying markets, as represented by the MSCI World Index1 were up 1.28% over the same period. Managers held their ground despite tight markets in May with mid-month reversals across commodities, and weaker equity performance in developing markets affecting the trading scene. Among profitable moves for managers were some short Chinese names as markets fell earlier in the month. On the FX front, long USD positions on the back of relative dollar strength contributed to gains. Meanwhile, fluctuations on the GBP/USD caused by the ongoing 'Brexit' debate resulted in difficult trading ranges for some managers. With disappointing non-farm payroll (NFP) numbers from the US, the chances of a summer rate hike by the Fed look quite uncertain despite this being an otherwise sensible course of action to take. While this might be a good opportunity for the Bank of Japan (BoJ) to step in with additional easing and take some pressure off the Fed, the chances of that happening given the recent fiscal easing remain low. That said, we could be in for a hot summer that could make investors sweat.

Below are the key highlights for the month of May 2016:

Hedge funds were up 0.42% during the month and up 0.76% as at end-May 2016. On a year-to-date basis, 48% of managers were in the red this year compared to 20% of managers who reported year-to-date losses over the same period last year.
Distressed debt hedge funds posted the best gains during the month - up 1.65% with year-to-date returns of 2.64%. Distressed debt managers have had a rebound in 2016, compared to their performance over in 2015 (up 2.15% May 2015 year-to-date and down 4.41% in 2015).
Latin American mandated hedge funds were the worst performers during the month, down 0.35%. Nonetheless, Latin American managers have outperformed the MSCI Latin American Index2 which was down 6.01% over the same period.
Asia ex-Japan managers gained 0.35% during the month and lost 1.98% year-to-date. Meanwhile underlying Greater China hedge funds dropped by 1.44% in May, with losses of 5.73% on a year-to-date basis, outperforming the CSI 300 Index which has declined 15.05% as of May 2016 year-to-date.
Among developed market mandates, North American and Japanese managers were up 1.09% and 1.07% respectively, followed by European managers with gains of 1.01%. On a year-to-date basis, North American managers led with 2.01% returns following a recovery from their February lows.
Japanese hedge funds were down 2.91% in the first five months of 2016, their worst year-to-date return on record. A survey of Japanese investors reveals that 90% anticipate further easing from the Bank of Japan this year.
The CBOE Eurekahedge Short Volatility Hedge Fund Index was up 1.95% during the month as volatility levels declined towards the latter half of May. On a year-to-date basis, short volatility managers were up 1.46%.

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