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Widespread investor caution and uncertainty over both geopolitical and economic tensions continued to linger as inflation remains persistently high amid the ongoing Russia-Ukraine war and continued global supply chain disruptions.

This has fanned concerns that the Federal Reserve will be forced to tighten monetary policy more aggressively to prevent inflation from spiralling out of control and at the same time avoid pushing the economy into a recession. Market participants are expecting the Federal Reserve to hike interest rates by 50bps in its June and July meetings and then move to a more modest 25bps for the rest of 2022.

Compounding matters further, the BA.4 and BA.5 Omicron subvariants which are better than previous versions of Omicron at evading the immune system's defences are steadily gaining ground, adding more uncertainty to the future trajectory of the global coronavirus pandemic.

Over in Europe, returns were mixed among equity benchmarks in the region with the RTS Index up 11.71% while the Euro Stoxx 50 and CAC 40 Index were down -0.36% and -0.99% respectively. The high prices for commodities, which is Russia' key source of revenue combined with the imposition of capital controls has enabled the Russian rouble to appreciate by a further 14.29% against the US dollar in May, supporting the performance of the RTS Index.

Returns were negative across geographic mandates in May, except for the Latin American mandate which posted a return of 0.88% while the Japanese mandate trailed behind their peers with a return of -1.50%. Across strategies, the macro mandate performed the best, posting the smallest decline of -0.11% while the event driven mandate trailed behind their peers with a return of -1.55%.

Roughly 38.6% of the underlying constituents of the Eurekahedge Hedge Fund Index posted positive returns in May, and 43.0% of the hedge fund managers in the database were able to maintain a positive return in 2022.

Key highlights for the month of April 2022:

• Hedge fund managers were down 0.52% in May, outperforming the tech-heavy NASDAQ by 1.53% but trailed behind the S&P 500 by 0.51%. Around 38.6% of global hedge funds have generated positive returns in May, while around 43.0% of them have maintained a double-digit performance throughout the year. On a year-to-date basis, global hedge funds were down -2.61%, outperforming the S&P 500 which returned -13.30% over the same period.

• On an asset-weighted basis, hedge funds were down 0.35% in May, as captured by the Eurekahedge Asset Weighted Index - USD, slightly outperforming its equal-weighted counterpart by 0.17%. On a year-to-date basis, the Eurekahedge Asset-Weighted Index - USD was down -1.89% over the first five months of the year.

• The ability of large size hedge funds to diversify their assets have paid off in this challenging period as they have reported relatively smaller losses among their peers in May, with billion dollar hedge funds losing -0.45% compared to the -0.50% return of their medium-size counterparts. In terms of year-to-date returns, the Eurekahedge Billion Dollar Hedge Fund Index was down -0.15%, outperforming their medium-size peers which posted losses of -2.49% as of May 2022.

• The Eurekahedge CTA/Managed Futures Hedge Fund Index was down -0.20% in May, snapping its five-month winning streak. Commodity prices except for oil retreated during the month owing to the concern over an impending global recession driven by the hawkish Federal Reserve and geopolitical uncertainty. In terms of year-to-date return, CTA/managed futures hedge funds were up 8.14% over the first five months of the year.

• Emerging market hedge funds, as represented by the Eurekahedge Emerging Markets Hedge Fund Index were down -0.12% in May, outperforming its developed market peers in North America and Europe who were down by -0.13% and -1.24% respectively. The positive performance of the equity market in the emerging market particularly in Asia and Latin America supported the fund manager's performance during the month. China's Shanghai Composite was up 4.57% in May, while Brazil's IBOVESPA was up 3.22% over the same period.

• The Eurekahedge North America Long Short Equities Hedge Fund Index was up 0.24% in May, bringing its year-to-date return to -7.31%. US equities on average ended the month flat as seen by the S&P 500 and Dow Jones, while US tech companies declined as seen by the -2.05% return of the NASDAQ Composite. Selling pressure on US equity markets continued during the first half of May due to higher inflation rates in the region which have resulted in a hawkish Federal Reserve. In the second half of May, US equities recovered their losses and ended the month flat, thanks to the easing lockdowns in China and market expectations that inflation rates in the region have reached its peaked.

• Fund managers focusing on cryptocurrencies as represented by the Eurekahedge Crypto-Currency Hedge Fund Index declined -22.62% in May, bringing their year-to-date return to -40.14%. Similar to other risk asset classes, the magnitude of market breakdown has also impacted the cryptocurrency market. Bitcoin was down -17.83% in May, while Ethereum the second-largest cryptocurrency in terms of market value was much more volatile as it recorded -29.07% of losses during the month. By comparison, cryptocurrency hedge funds posted a May year-to-date return of -35.52% in 2018, the worst year for cryptocurrency hedge funds since the inception of the index in terms of full year returns.

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