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Mixed returns for hedge funds in November as US, Asia recover but European managers sink over Italy and Brexit

Tuesday, December 11, 2018
Opalesque Industry Update - The Eurekahedge Hedge Fund Index was down 0.17% in November, trailing the global equity market as represented by the MSCI AC World Index (Local) which edged 1.11% higher.

Dovish stance from the US Federal Reserve and anticipation over the G20 meeting in Buenos Aires helped the North American and Asian equity markets recover from severe losses they suffered last month.

On the other hand, uncertainties continued to loom over the European economies as Brexit negotiation remained inconclusive, and Italy's budget plan raised concerns over the country's debt levels.

Despite the robust gains recorded by major equity indices across North America and Asia Pacific, the Eurekahedge Long Short Equities Hedge Fund Index was down 0.49% throughout the month, as fund managers struggled to position themselves to benefit from the equity market reversal over the latter half of the month.

On a year-to-date basis, the Eurekahedge Hedge Fund Index was down 2.40% over the first eleven months of 2018, and is on track to post its worst performance since the global financial crisis in 2008.

Roughly 44.8% of the underlying constituents of the Eurekahedge Hedge Fund Index avoided posting losses over the month, and barely 9.2% of the hedge fund managers were able to maintain double-digit year-to-date returns.

The asset-weighted Mizuho-Eurekahedge Index (USD) declined 0.73% during the month, in contrast to the 0.17% loss posted by the equal-weighted Eurekahedge Hedge Fund Index, indicating that the losses were heavier among the large-sized hedge fund managers.

Indeed, the equal-weighted Eurekahedge Small Hedge Fund Index which comprises fund managers overseeing no more than US$100 million in assets was marginally up by 0.09%, in contrast to the 0.98% losses posted by billion dollar hedge funds over the month.

Key highlights for the month of November 2018:

Hedge funds were down 0.17% in November, trailing behind the MSCI AC World Index (Local) which gained 1.11% over the month. Roughly 23.2% of the hedge fund managers tracked by Eurekahedge outperformed the market index in November.

On an asset-weighted basis, hedge funds lost 0.73% in November, bringing their year-to-date losses to 3.79%, as captured by the Mizuho-Eurekahedge Hedge Fund Index (USD).

North American hedge funds gained 0.89% in November, on the back of the underlying equity market rally in response to Powell's remark that the Fed rates are 'just below' the neutral level.

Over in Asia, optimism over a slower pace of rate hikes in the US boosted the region's equity markets and currencies. The Eurekahedge Asia ex Japan Hedge Fund Index was up 1.77%, with a sizeable portion of the gains concentrated among fund managers focusing on India (5.80%) and Greater China (2.67%).

The Eurekahedge European Hedge Fund Index slumped 1.03% in November, with the underlying long/short equities mandate down 1.46% as the region's equity markets remained vulnerable to uncertainties surrounding Brexit negotiation and Italy's debt levels.

Performance across strategic mandates was a mixed bag in November, with arbitrage hedge funds leading the pack by gaining 4.86% over the month. On the other end of the spectrum, distressed debt hedge funds were down 1.66%, dragged by the weakness in high yield market.

The Eurekahedge CTA/Managed Futures Hedge Fund Index was down 0.23% during the month as plummeting oil and overall weakness in the energy sector weighed on fund managers' performance. On a year-to-date basis, the index was down 4.21% and the mandate has suffered US$12.2 billion of performance-based losses and US$18.5 billion of net investor redemptions.

Fund managers utilising AI/machine learning strategies were up 2.09% in November, ending their streak of losses which placed them on track to record their worst year since the inception of the Eurekahedge AI Hedge Fund Index. On a year-to-date basis, the index is still down 4.50%.

The Eurekahedge ILS Advisers Index was down 4.24% as the catastrophic losses incurred by Hurricane Florence and Hurricane Michael weighed on ILS fund managers' returns. On a year-to-date basis, ILS fund managers were down 3.55%, firmly placing 2018 as the second worst year for the Eurekahedge ILS Advisers Index right next to 2017.

The Eurekahedge Crypto-Currency Hedge Fund Index was down 10.88% in November, as Bitcoin price crashed below the US$4,000 level nearing the end of the month. The index has lost 61.47% of its value since the end of 2017.

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