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North American hedge funds ended 2018 with their worst month post-crisis

Tuesday, January 08, 2019
Opalesque Industry Update - The Eurekahedge Hedge Fund Index was down 0.82%1 in December, outperforming the MSCI AC World Index (Local) which plummeted 7.61% in what turned out to be the worst month of 2018 for equities.

The Federal Reserve continued to hike its funds rate in December and announced further tightening in 2019, triggering a sell-off in equity markets around the globe.

Concerns over the US treasuries yield curve inversion eclipsed the optimism over the agreement made between Trump and Xi to postpone planned tariff increases, which opened a path for further negotiations.

Over in Europe, the Italian government managed to strike a deal with the EU over its budgetary plans, resulting in the decline of the country's sovereign bond yields. In contrast to the US Federal Reserve's decision to raise rates, the ECB ended up holding their rates steady while confirming the end of their asset purchasing programmes.

Preliminary data estimated that the Eurekahedge Hedge Fund Index has lost 3.35% throughout the year of 2018, contrary to how hedge fund managers were able to generate 8.50% return on average in 2017.

Roughly 38.6% of the underlying constituents in the Eurekahedge Hedge Fund Index ended December in positive territory, and around 6.9% of the hedge fund managers were able to maintain double-digit returns throughout 2018.

The asset-weighted Mizuho-Eurekahedge Index (USD) ended the month flat, declining 0.02%, in contrast to the 0.82% loss posted by the equal-weighted Eurekahedge Hedge Fund Index.

The Eurekahedge Small Hedge Fund Index which comprises fund managers overseeing no more than US$100 million in assets was down 1.06% during the month, while on the other hand, billion dollar hedge funds ended the month marginally down 0.06%.

Key highlights for the month of December 2018:

Hedge funds were down 0.82% in December, outperforming the MSCI AC World Index (Local) which declined 7.61% over the month. A vast majority of the hedge fund managers tracked by Eurekahedge outperformed the market index in December.

On an asset-weighted basis, hedge funds lost 0.02% in December, bringing their year-to-date losses to 3.74%, as captured by the Mizuho Eurekahedge Hedge Fund Index (USD).

North American fund managers lost 3.29% in December, as the underlying equity markets recorded their worst month of 2018. The S&P 500 index declined 9.18% in December. The Eurekahedge North America Long Short Equities Hedge Fund Index recorded a loss of 4.63% during the month.

Over in Asia, concerns over slowing growth weighed on the region's equity markets. The Eurekahedge Asia ex Japan Hedge Fund Index was down 2.82% throughout the month, bringing its year-to-date loss to 10.66%.

The Eurekahedge European Hedge Fund Index slumped 0.90% in December, with the underlying long/short equities mandate down 1.81% as the region's equity markets remained vulnerable to uncertainties surrounding Brexit negotiation and the end of ECB's asset purchasing programme.

Performance across strategic mandates was a mixed bag in December, with macro hedge funds leading the pack by gaining 1.56% over the month. On the other end of the spectrum, event driven hedge funds were down 2.78%.

The Eurekahedge CTA/Managed Futures Hedge Fund Index gained 0.93% during the month despite weakness in the energy sector following the decline in oil prices. On a year-to-date basis, the index was down 3.17% and the mandate has suffered US$15.9 billion of performance-based losses and US$22.2 billion of net investor redemptions.

Fund managers utilising AI/machine learning strategies were up 2.17% in December, after 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. Over the entire 2018, the index was still down 2.97%.

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