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December 2021 started out on a negative note due to the rising numbers of COVID-19 cases driven by the highly infectious Omicron variant and the decision by the Federal Reserve to accelerate the timeline for tapering and stop referring to inflation as transitory. Risk sentiment improved over the second half of December after evidence emerged suggesting that the Omicron variant is less severe than previous variants and leads to lower rates of hospitalisation and deaths.

In addition, the efficiency of vaccines against Omicron can be further improved with a booster shot, assuaging investors' concern that the global economic recovery would be derailed. This boost to sentiment provided strong support to US equities, with the DJIA and S&P500 posting gains of 5.38% and 4.36% in December respectively.

Over in Europe, returns were positive among equity benchmarks in the region with the CAC 40 and Euro Stoxx 50 taking the lead with returns of 6.43% and 5.79% respectively. Despite the reimposition of restrictions in some countries to manage the spread of the Omicron variant, investors remain optimistic that the global economy remains on track to grow at an above trend rate over the course of 2022.

Returns were positive across geographic mandates in December, with the Japanese and North American mandates performing the best with returns of 2.13% and 2.00% respectively while the Emerging Markets and Latin American mandates lagged their regional peers with returns of 1.00% and 0.94% respectively.

Across strategies, long short equities and macro mandates performed the best with returns of 1.53% and 1.52% respectively while the arbitrage and distressed debt mandates lagged their peers with returns of 0.15% and 0.00% respectively.

Hedge funds bring their 2021 return to 9.38%

Hedge fund managers reversed losses in November and gained 0.91% in December, bringing their 2021 return to 9.38% - the second best annual performance since 2010. Hedge funds were supported by the robust performance of the global equity market as represented by the MSCI ACWI (Local) which returned 3.55% over the month. Around 74.6% of the constituents of the Eurekahedge Hedge Fund Index generated positive returns in 2021.

On an asset-weighted basis, hedge funds gained 1.03% in December, as captured by the Eurekahedge Asset Weighted Index - USD. In terms of 2021 performance, the index is only up 3.41%, highlighting the struggles for some of the larger asset managers over the year.

The Eurekahedge North American Hedge Fund Index gained 2.00% in December, supported by the robust performance of the DJIA and S&P 500 which gained 5.38% and 4.36% respectively over the month. In terms of 2021 performance, North American fund managers were up 14.70%, posting their second consecutive year of double-digit returns.

The Eurekahedge European Hedge Fund Index gained 1.11% in December, supported by the robust performance of the pan-European Euro Stoxx 50 which gained 5.79% over the month. Investors brushed aside concerns over the surge in Omicron cases as evidence suggests the Omicron variant leads to lower rates of hospitalisation and death. In terms of 2021 performance, European fund managers were up 7.83%, posting their best annual performance since 2013.

The Eurekahedge Asia ex-Japan Hedge Fund Index was up 1.02% in December, bringing its 2021 performance to 7.68%. In contrast to their strong performance in 2020 when they outperformed their European and North American peers by 15.29% and 7.75% respectively, Asia ex-Japan hedge funds have underperformed their regional peers in 2021 as Greater China hedge funds who were the primary index performance driver in 2020 failed to sustain their strong returns as reflected in their 0.44% gain in 2021.

The Eurekahedge Equity Long Bias Hedge Fund Index gained 3.30% in December, rebounding strongly from a 2.32% loss suffered in the previous month. In terms of 2021 performance, long bias fund managers were up 13.77%, posting their third consecutive year of double-digit returns.

The Eurekahedge Long Short Equities Hedge Fund Index gained 1.53% in December, rebounding strongly from a 1.55% loss suffered in the previous month. In terms of 2021 performance, long short equities fund managers were up 10.76%, posting their third consecutive year of double-digit returns.

The CBOE Eurekahedge Short Volatility Hedge Fund Index gained 2.90% in December, supported by the decline in market volatility as seen in the -36.67% decline in the CBOE VIX in December as encouraging news around the reduced severity of the Omicron variant assuaged investors' concern that the global economic recovery would be derailed. In terms of 2021 performance, short volatility fund managers were up 15.42%, posting their highest annual return since 2009.

Fund managers focusing on cryptocurrencies declined -17.78% in December as tracked by the Eurekahedge Crypto-Currency Hedge Fund Index, outperforming Bitcoin which fell -18.51% over the same period. In terms of 2021 return, cryptocurrency hedge funds have gained 124.44%, outperforming Bitcoin which returned 63.82%.