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Hedge funds down 1.12% in November: Eurekahedge

Wednesday, December 15, 2021
Opalesque Industry Update - Hedge funds down 1.12% in November as emergence of new Omicron COVID-19 variant and hawkish central bank communication weighed on sentiment.

The Eurekahedge Hedge Fund Index declined -1.12% in November 2021, outperforming the global equity market as represented by the MSCI ACWI (Local) which returned -2.03% over the same period.

Risk aversion escalated in November over the emergence of a new Omicron variant of COVID-19 and concerns that it would lead to a surge in COVID-19 cases and necessitate the reimposition of lockdowns.

Compounding matters further, Federal Reserve Chairman Jerome Powell indicated that a swifter tapering of asset purchases was under consideration and that inflation should no longer be described as transitory. The resulting uncertainty led to a surge in market volatility, as seen in the 67.22% increase in the CBOE VIX and negatively impacted the performance of global equities.

The DJIA and S&P500 posted declines of -3.73% and -0.83% in November respectively, bringing their year-to-date return down to 12.67% and 21.59% respectively. Over in Europe, returns were negative among equity benchmarks in the region with the Euro Stoxx 50 and DAX down -4.41% and -3.75% respectively.

The emergence of the new Omicron coronavirus has already forced some European countries to reintroduce restrictions on activity, causing concern that this would negatively impact the progress of economic recovery.

Returns were negative across geographic mandates in November, with Asia ex-Japan hedge funds the only exception with a modest return of 0.02% while the North American and European mandates trailed behind with returns of -0.82% and -1.38% respectively. Across strategies, arbitrage hedge funds outperformed their strategic peers with a return of 0.34% in November while CTA/Managed Futures was the worst performer with a return of -2.19%.

Hedge fund managers declined -1.12% in November, bringing the YTD gain to a still strong 8.37%. The emergence of the Omicron variant, increasing inflation concerns and hawkish Fed communications triggered risk-off sentiment which led to the global equity market as represented by the MSCI ACWI (Local) declining -2.03% over the month. Around 74.4% of the constituents of the Eurekahedge Hedge Fund Index generated positive returns in 2021.

On an asset-weighted basis, hedge funds declined -1.72% in November, as captured by the Eurekahedge Asset Weighted Index - USD. In terms of 2021 performance, the index is only up 2.51%, highlighting the struggles for some of the larger asset managers over the year.

Eurekahedge North American Hedge Fund Index declines -0.82% in November

The Eurekahedge North American Hedge Fund Index declined -0.82% in November, outperforming the DJIA which fell -3.73% over the month. American stock markets came under pressure after Federal Reserve Chairman Jerome Powell indicated that a swifter tapering of asset purchases was under consideration, which surprised market participants given elevated risks from Omicron. On a year-to-date basis, North American fund managers were up 12.61%, recording their best November YTD performance since 2009.

The Eurekahedge European Hedge Fund Index declined -1.38% in November, outperforming the pan-European Euro Stoxx 50 which fell -4.41% over the month. Market risk sentiment was dampened due to the emergence of the new Omicron coronavirus variant which forced some European countries to reintroduce restrictions on activity. On a year-to-date basis, European fund managers were up 6.80%, recording their best November YTD performance since 2013.

The Eurekahedge Asia ex Japan Hedge Fund Index eked out modest gains of 0.02% in November, bringing the YTD gain to 6.95%. The mandate faced headwinds from the -2.92% decline of the MSCI AC Asia Pacific Ex Japan Index over the month as investors were spooked by the emergence of the Omicron variant of COVID-19 which could render existing vaccines less effective and necessitate the reimposition of restrictive lockdowns.

Eurekahedge CTA/Managed Futures Hedge Fund Index declines -2.19% in November

The Eurekahedge CTA/Managed Futures Hedge Fund Index declined -2.19% in November, outperforming the S&P GSCI Index which fell -10.82% over the month. Brent crude oil and West Texas intermediate crude oil fell -15.55% and -19.04% in November respectively due to concern the new Omicron variant would result in reduced demand. On a year-to-date basis, CTA/Managed Futures hedge funds were up 5.72%, recording their best November YTD performance since 2014.

The CBOE Eurekahedge Long Volatility Hedge Fund Index gained 1.66% in November, bringing the November year-to-date return to -6.69%. Long volatility hedge funds benefitted from the 67.22% surge in the CBOE VIX in November due to increased uncertainty over how central banks and interest rates would respond to persistently high inflation and the impact of the Omicron variant on the trajectory of the economic recovery.

Fund managers focusing on cryptocurrencies declined -2.09% in November as tracked by the Eurekahedge Crypto-Currency Hedge Fund Index, outperforming Bitcoin which fell -6.52% over the same period. In terms of 2021 return, cryptocurrency hedge funds have gained 171.89%, outperforming Bitcoin which returned 101.03% over the first eleven months of the year.

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