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Hedge funds start the year by outperforming the global equity market led by distressed debt and event driven strategies

Tuesday, February 09, 2021
Opalesque Industry Update - The Eurekahedge Hedge Fund Index was up 0.37% in January 2021, outperforming the global equity market as represented by MSCI ACWI (Local) which gained 0.11% over the same period. Global equities went on a roller coaster ride this month as their gains in the earlier period were erased due to the turbulence of retail investment in the last part of the month.

In the US, Joe Biden's inauguration as the 46th president in the US and Democrats taking control in the Senate boosted the performance of the equity market in the earlier period of the month. Investors were optimistic about the proposed domestic stimulus and shift in the foreign policy of the new administration. However, market risk sentiment rapidly changed as the clash between retail investors and notable hedge funds over GameStop stock affected investors' confidence of the stability of the market.

A group of retail investors in a trading community collectively bought GameStop shares which pushed its price to an extreme level. The massive buying squeezed the position of a notable hedge fund that bet against the company, resulting in them losing more than half of their assets under management. This incident forced brokers to place trading restrictions on the stock. The US equity benchmark erased the gains they generated in the earlier period of the month, with the DJIA and S&P 500 losing 2.04% and 1.11% respectively.

Over in Europe, most of the equity benchmarks in the region were in negative territory, with the CAC 40 and DAX down 2.74% and 2.08% respectively. Returns were mixed across geographic mandates in January, with Asia ex-Japan and North American hedge funds gaining 2.09% and 0.79% respectively, while European hedge funds were down 0.34%. Across strategies, distressed debt, event driven, and long/short equities fund managers were up 1.12%, 1.01%, and 0.77% respectively throughout the month.

Roughly 53.4% of the underlying constituents of the Eurekahedge Hedge Fund Index posted positive returns in January, and 57.4% of the hedge fund managers in the database were able to outperform the global equity market as represented by the MSCI ACWI.

Below are the key highlights for the month of January 2021:

Hedge fund managers were up 0.37% in January, ahead of the global equity market which returned 0.11% during the month. In terms of 2020 performance, global hedge funds were up 12.11% - recording their strongest annual return since 2009 despite the ongoing pandemic. Around 40% of the constituents of the Eurekahedge Hedge Fund Index gained a double-digit return throughout 2020.

On an asset-weighted basis, hedge funds were down 0.41% in January, as captured by the Eurekahedge Asset Weighted Index - USD. . In 2020, the index is only up 4.38%, highlighting the struggles for some of the larger asset managers over the year.

The Eurekahedge Greater China Hedge Fund Index was up 3.05% in January, outperforming the Shenzhen and Shanghai Composite by 2.81% and 2.76% respectively. Throughout 2020, Greater China mandates recorded a strong return as they benefitted from the robust performance of the equity market in the region, driven by the strong GDP growth of the Chinese economy while the rest of the world were struggling. The mandate was up 35.72% in 2020, compared to 16.62% in 2019.

The Eurekahedge Long Short Equities Hedge Fund Index was up 0.77% in January, outperforming the S&P 500 by 1.88% over the month. In terms of yearly return, the index recorded three years of double-digit performance over the last four years as it gained 17.55% in 2020. In the same year, long/short equities recorded their best-nine-month run since the inception of the index as they returned 32.81% for the month ending December.

Emerging market hedge funds gained 1.10% in January as captured by the Eurekahedge Emerging Market Hedge Fund Index. In terms of annual return since 2017, supported by the strong performance of risk assets, the mandate recorded double-digit return three out of four years as they gained 16.86%, 12.69%, and 16.73% in 2017, 2019, and 2020 respectively.

The Eurekahedge Structured Credit Hedge Fund Index was up 1.89% during the month, extending its ten-month trailing return to 26.91% since end-March 2020. In terms of annual return, structured credit hedge funds ended their 11-year winning streak as they were down 2.98% in 2020. The three-quarter accumulative return of the mandate from the second to the fourth quarter of 24.55% was not enough to cover the losses they incurred in the first quarter.

Fund managers focusing on cryptocurrencies were up 30.96% in January as tracked by the Eurekahedge Crypto-Currency Hedge Fund Index, underperforming Bitcoin which gained 20.35% over the same period. In terms of 2020 return, cryptocurrency hedge funds gained 200.61% compared to the 296.74% return of Bitcoin throughout the year.

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