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19% of hedge funds still down in 2021

Wednesday, July 14, 2021
Opalesque Industry Update - Hedge funds recorded their best H1 performance since 2009 but only 81.1% of the constituents of the Eurekahedge Hedge Fund Index generated positive returns during that period.

The Eurekahedge Hedge Fund Index was up 0.15% in June 2021, trailing behind the global equity market as represented by the MSCI ACWI (Local) which gained 1.93% over the same period. Covid-related mobility restrictions in most developed markets continued to be progressively relaxed, providing support to the reopening of their economies.

The quick rebound in economic activity led to increased inflation in some countries, most evidently in the United States where in May, the US consumer price index increased by 5.0% year-on-year which is the highest level since August 2008. This has led to fears that the higher inflation figure could compel the Federal Reserve to tighten monetary policy earlier than expected.

Although the Federal Reserve considers the rise in inflation to be transitory, they have started to discuss the possibility of rate hikes with the median FOMC participant expecting two rate hikes in 2023. The S&P 500 and NASDAQ closed the first half of 2021 at or near record highs, rising by 2.22% and 5.49% in June respectively, supported by the rebound in economic activity as more people return to work.

Over in Europe, returns were mostly positive among equity benchmarks in the region with the CAC 40 and DAX index taking the lead with gains of 0.94% and 0.71% respectively. The increased pace of vaccination in Europe has led to increased optimism for a more sustained reopening of economic activity in the second half of the year.

Returns were mostly positive across geographic mandates in June with Asia ex-Japan and emerging market hedge funds in the lead with returns of 2.04% and 1.20% respectively. Across strategies, distressed debt and arbitrage outperformed their strategic peers with returns of 4.30% and 0.70% respectively throughout the month.

The key highlights for the month of June 2021:

Hedge fund managers were up 0.15% in June, trailing behind the global equity market as represented by the MSCI ACWI (Local) which gained 1.93% during the month. In terms of 2021 performance, global hedge funds were up 7.95%, recording the strongest June year-to-date return since 2009 despite the ongoing pandemic. Around 81.1% of the constituents of the Eurekahedge Hedge Fund Index generated positive returns in 2021.

On an asset-weighted basis, hedge funds were down 1.00% in June, as captured by the Eurekahedge Asset Weighted Index - USD. In terms of 2021 performance, the index is only up 3.70%, highlighting the struggles for some of the larger asset managers over the year.

The Eurekahedge North American Hedge Fund Index was up 1.14% in June, supported by the strong performance of the S&P 500 and NASDAQ which returned 2.22% and 5.49% respectively. In terms of 2021 performance, North American hedge funds have returned 11.43%, outperforming their regional peers as the economy continues its reopening and more people are returning to work.

The Eurekahedge Asia ex Japan Hedge Fund Index was up 2.04% in June, recording the best monthly performance among the regional indices. In terms of 2021 performance, Asia ex-Japan hedge funds have returned 8.95%, outperforming all of their regional peers except their North American counterparts which returned 11.43% over the same period.

The Distressed Debt Hedge Fund Index gained 4.30% in June, recording their best monthly return in 2021. In terms of 2021 performance, distressed debt hedge funds outperformed all of their main strategic peers and were up 13.08%, recording their strongest June year-to-date return since 2003.

The Eurekahedge Long Short Equities Hedge Fund Index was up 0.57% in June, extending their streak of consecutive positive returns to nine months. In terms of 2021 performance, long/short equities hedge funds have returned 10.35%, recording their strongest June year-to-date return since 2009.

The Eurekahedge India Hedge Fund Index was up 1.73% in June, outperforming the BSE SENSEX index which gained 1.05% over the month. Despite the stubbornly high numbers of new COVID-19 cases in India driven by the Delta variant, the OECD has projected India's economy to expand by 9.9% and become the fastest-growing G20 economy in 2021. In terms of 2021 performance, Indian hedge funds were up 14.97%, outperforming their Greater China counterparts which returned 7.43% over the first six months of 2021.

Fund managers focusing on cryptocurrencies were down 13.33% in June as tracked by the Eurekahedge Crypto-Currency Hedge Fund Index, trailing behind Bitcoin which gained 0.55% over the same period. In terms of 2021 return, cryptocurrency hedge funds have gained 77.05%, outperforming Bitcoin which returned 24.95% over the first six months of the year.

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