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Eurekahedge Hedge Fund Index up 0.76% in August (+5.16% YTD); CTAs and macro strategies shine as hedge funds continued uptrend with 0.76% gains

Wednesday, September 13, 2017
Opalesque Industry Update - Hedge funds continued their uptrend and gained 0.76%1 in August, outperforming underlying markets as represented by the MSCI AC World Index (Local) which grew 0.15% during the month.

Almost all hedge fund strategies ended the month in the green, with CTA/managed futures up 1.27% and macro hedge funds up 1.17% delivering the strongest gains. Across regional mandates, emerging markets focused hedge funds continue to post strong gains relative to their developed market peers contributed in part by the depreciating US dollar which is down almost 9.34%2 year-to-date.

August was dominated by geopolitical tensions on the Korean peninsula as the risk of a nuclear showdown between North Korea and the US-led allies became more palpable. The event overshadowed US job gains posted earlier during the month, leading to a short-lived spike in volatility and sell off in equities.

The Japanese yen, despite being on the frontline of North Korean aggression, maintained its safe haven status, and along with the Chinese renminbi posted gains against the US dollar. Fixed income markets saw declining yields in the flight for safe haven assets, with defensive comments from the central bank meeting at the Jackson Hole symposium doing little to lift market expectations.

While the Korean crisis appears to be on track towards a calculated de-escalation, the Fed's balance sheet deleveraging will remain a more cumbersome undertaking and is likely be the main challenge to the market calm and risk appetite as we head into the year end. Below are the key highlights for the month of August 2017:

• Hedge funds gained 0.76% in August with underlying markets, as represented by the MSCI AC World Index (Local), up 0.15% over the same period. On a year-to-date basis, managers gained 5.16% while underlying markets were up 9.58%.

• Managers running a long volatility mandate grew 0.54% following seven consecutive months of losses as the North Korean crisis brought volatility back to life, albeit quite briefly. On a year-to-date basis, long volatility hedge funds are down 7.46% while short volatility hedge funds have gained 6.85% for the year.

• Among developed market mandates, Japanese hedge funds led on a year-to-date basis, up 6.37%, followed by Europe with growth of 4.85% and North America with 3.35%.

• On a year-to-date basis, equity long bias hedge funds led with gains of 10.49%, followed by event driven up 7.08% and short volatility hedge funds up 6.85%.

• Emerging market mandates continued to outshine their developed market peers, with India, Greater China and Asia ex-Japan hedge funds up 22.06%, 19.80% and 14.24% respectively. Latin America and Eastern Europe mandated funds are also up 13.50% and 11.00% for the year.

• Distressed debt hedge fund managers were barely in the positive in August, up 0.03% and 4.38% year-to-date respectively, with losses coming from their exposure to high yield debt in the energy sector as oil prices declined following the closure of oil refineries in the US on the back of hurricane Harvey.

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