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Hedge funds trumped a volatile November with gains of 0.48% as recovery continues

Tuesday, December 13, 2016
Opalesque Industry Update - Hedge funds were up 0.48% during the month of November, with 2016 year-to-date returns coming in at 3.60%. Meanwhile, underlying markets as represented by the MSCI AC World Index (Local) gained 2.88% in November with its 2016 year-to-date returns at 4.88%. Roughly 56% 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 2.07% while among strategic mandates, event driven hedge funds led the tables with gains of 2.13%.

"We believe that 2017 will hold more volatility in store for the markets," Eurekahede said. 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?

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

  • Hedge funds gained 0.48% in November and 3.60% year-to-date with underlying markets, as represented by the MSCI AC World Index (Local) up 4.88% for the year. Almost 19.3% of global hedge funds have posted double digit gains in 2016, up from 17.6% in 2015 and well below 38.4% in 2013.
  • Among developed mandates, North American hedge funds lead the gains in November up 2.07%, followed by Japanese hedge funds which were up 1.14% while European hedge fund managers languished in negative territory, down 0.39%. On a year-to-date basis, North American hedge funds gained 6.95% while European and Japanese peers lost 1.25% and 0.22% respectively.
  • Emerging market mandates have preserved their gains for 2016 and are up 7.11% year-to-date with strong showing from underlying Latin America and Eastern Europe/Russia mandates. The Eurekahedge Frontier Markets Hedge Fund Index is up 7.62% for the year with ongoing OPEC-Russia led support for Oil prices likely to buoy their returns further.
  • Among strategic mandates, distressed debt hedge funds posted the best 2016 year-to-date returns, gaining 11.94%, followed by event driven and relative value hedge funds which were up 8.86% and 7.46% respectively.
  • The Eurekahedge CTA/Managed Futures Hedge Fund Index posted the steepest decline among strategic mandates in October and lost 0.27%, with underlying FX and commodity-focused strategies declining 1.21% and 0.19% respectively while trend-following mandates were up 0.73%.
  • Asia ex-Japan hedge fund managers were down 1.23% during the month was up 0.57% for the year and on track to post their worst performance since 2011. Underlying Greater China mandated equity long/short funds remained firmly in the red with losses of 2.90%.
  • Modi's surprise de-monetisation move coincided with troubles for emerging markets post Trump win with India dedicated hedge funds down 4.84% in November, eroding the bulk of their gains for the year.

What do you think?

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