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Hedge funds recorded their best Q1 performance since 2006 on the back of a global equity rally

Wednesday, April 14, 2021
Opalesque Industry Update - The Eurekahedge Hedge Fund Index was up 0.95% in March 2021, supported by the robust performance of the global equity market as represented by the MSCI ACWI (Local) which gained 3.24% over the same period. Long-dated US treasuries continued to sell off, resulting in the yield of the 10-year treasury note rising by 34bp to end the month at 1.744%.

The Federal Reserve committed to keep monetary policy accommodative for at least another two years and allow inflation to rise above 2% before considering any policy change. This led to growing concerns among investors that the huge economic and monetary stimulus rolled out thus far would lead to rising inflation.

The equity market in the United States continued to record strong returns in March 2021, with the DJIA gaining 6.62% and the S&P 500 gaining 4.24%. Equities were supported by the US$1.9 trillion economic stimulus package rolled out by the Biden administration as well as the continued speedy rollout of vaccinations.

In the meantime, the Biden Administration is considering a further multi-trillion dollar infrastructure spending package which is expected to further support US economic growth. Over in Europe, returns were positive among equity benchmarks in the region as the DAX Index and the Euro Stoxx 50 took the lead with gains of 8.86% and 7.78% respectively.

Returns were mostly positive across geographic mandates in March with North American and European hedge funds gaining 1.56% and 1.37% respectively while Asia ex-Japan hedge funds were down 0.90%. Across strategies, event driven and long short equities outperformed their strategic peers with returns of 1.59% and 1.26% respectively throughout the month.

Roughly 64.3% of the underlying constituents of the Eurekahedge Hedge Fund Index posted positive returns in March, and 15.3% of the hedge fund managers in the database were able to maintain a double digit return in 2021.

Hedge fund managers up 0.95% in March

Hedge fund managers were up 0.95% in March, supported by the strong performance of the global equity market which returned 3.24% during the month.

In terms of 2021 performance, global hedge funds were up 4.79%, recording the strongest March year-to-date return since 2006 despite the ongoing pandemic. Around 72.8% of the constituents of the Eurekahedge Hedge Fund Index generated positive returns in 2021.

On an asset-weighted basis, hedge funds were down 0.24% in March, as captured by the Eurekahedge Asset Weighted Index - USD. In terms of 2021 performance, the index is only up 0.95%, highlighting the struggles for some of the larger asset managers over the year.

The Eurekahedge North American Hedge Fund Index was up 1.56% in March, supported by the strong performance of the DJIA and S&P 500 which returned 6.62% and 4.24% respectively.

In terms of 2021 performance, North American hedge funds were also in the lead with a 6.77% year-to-date return, outperforming their regional peers as investors pinned their hopes on the prospect of a robust US economic recovery driven by the US$1.9 trillion economic stimulus package rolled out by the Biden administration.

Eurekahedge Long Short Equities Hedge Fund Index up 1.26% in March

The Eurekahedge Long Short Equities Hedge Fund Index was up 1.26% in March, supported by the robust performance of global equities over the month.

In terms of year-to-date return, the mandate gained 6.49% over the first three months of the year, a huge improvement compared to the -11.39% return of the index in Q1 2020.

The massive economic stimulus and the speedy rollout of COVID-19 vaccinations supported the performance of the long/short equities managers as they gained an accumulated return of 42.08% since the market meltdown in March 2020.

The Eurekahedge Event Driven Hedge Fund Index returned 1.59% in March, recording their 12th consecutive month of positive return.

In terms of Q1 2021 performance, event driven hedge funds outperformed their strategic peers by recording a 6.91% return, a much improved performance as compared to their -15.47% return in Q1 2020 when they lagged behind their peer group over the period.

Fund managers utilising equity long-bias strategies were up 2.58% in March, bringing their year-to-date return to 8.66% and outperforming the S&P 500 which gained 5.77% over the first three months of 2021.

In terms of their performance distribution, the top 10% of equity long-bias funds recorded an average return of 16.84%. In the same vein, the mandate also had their best 5-month performance in over a decade as they recorded an accumulated return of 26.26% since end-November 2020.

Fund managers focusing on cryptocurrencies were up 19.19% in March as tracked by the Eurekahedge Crypto-Currency Hedge Fund Index, underperforming Bitcoin which gained 25.92% over the same period. In terms of 2021 return, cryptocurrency hedge funds gained 116.81%, outperforming Bitcoin which returned 104.16% over the first 3 months of the year.

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