Index Flash Update - 11 April 2017







Hedge funds see 2.29% gains for 1Q 2017

Hedge funds gained 0.34% during the month of March, bringing its first quarter performance to a gain of 2.29%. Meanwhile underlying markets as represented by the MSCI AC World Index (Local) gained 0.79% during the month, with first quarter gains of 5.06%.

March was marked by investor scepticism over the Trump administration as proposed healthcare reforms to replace Obama’s Affordable Care Act did not meet intended outcomes. This led to an overall cautious sentiment in the market over the administration’s ability to deliver reforms in other sectors as promised during Trump’s campaign. Aside from developments in the White House, the Fed has delivered on market expectations by raising the interest rate in March though the pace of interest rate hike remains largely unchanged at an average of three rate hikes for the year. Outside of the US, the triggering of Article 50 has kick-started the official Brexit process. Strength in the Eurozone inflation rate has also propped up expectations of tightening from the ECB, which could see a convergence of monetary policy outlook for the world’s major central banks in the next 12 months.

Below are the key highlights for the month of March 2017:
  • Hedge funds gained 0.34% in March with underlying markets, as represented by the MSCI AC World Index (Local) up 0.79% over the same period. On a year-to-date basis, managers gained 2.29% while underlying markets were up 5.06%.
  • Among developed mandates, European hedge funds were up 0.73%, followed by North American peers with 0.48%. On the other hand, Japanese counterparts retracted 0.74% for the month. On a year-to-date basis, European managers reported 2.12% gains followed by North American and Japanese managers who posted returns of 2.10% and 1.15% respectively.
  • Distressed debt hedge fund managers posted the steepest decline this month, down 1.21% followed by CTA/managed futures and macro mandated hedge funds which retracted 0.77% and 0.18% respectively over the same period.
  • Emerging market mandates were up a modest 0.60% for the month with strength led by underlying Asia ex-Japan mandates. Frontier markets, as represented by the Eurekahedge Frontier Markets Hedge Fund Index is up 1.50% for the month.
  • The Eurekahedge Long/Short Equities Hedge Fund Index gained 1.07% during the month with strength led by underlying equity long-bias hedge funds which gained 1.51% over the same period. Long/short equities managers outshone other strategic mandates to post the best Q1 2017 returns, with gains of 3.87%.
  • Asia ex-Japan mandated hedge funds outshone regional peers, gaining 1.57% during the month.  Underlying Greater China and India hedge fund managers up 1.82% and 4.36% over the same period respectively. On a year-to-date basis, Greater China and India mandated hedge funds posted impressive gains, up 6.87% and 11.27% respectively.
  • Among volatility-focused hedge funds, short volatility hedge funds topped the table for March, gaining 1.43% while long-volatility hedge funds posted the steepest decline, down 2.02%. On a year-to-date basis, short volatility hedge funds gained 3.38% while tail risk hedge funds were down 4.74%.
Index of the Month Mar
2017 Returns 2016 Returns
CBOE Eurekahedge Short Volatility Hedge Fund Index 1.43 3.38 5.09

Main Indices

Main Eurekahedge Indices Mar
2017 Returns 2016 Returns
Eurekahedge Hedge Fund Index 0.34 2.29 4.49
Eurekahedge Fund of Funds Index 0.38 2.04 -0.14
Eurekahedge Long-only Absolute Return Fund 1.60 6.44 7.68
Eurekahedge Islamic Fund Index 1.20 3.13 4.44

Regional Indices

Eurekahedge Regional Indices Mar
2017 Returns 2016 Returns
Eurekahedge North American Hedge Fund Index 0.48 2.10 7.90
Eurekahedge European Hedge Fund Index 0.73 2.12 0.17
Eurekahedge Eastern Europe & Russia Hedge Fund Index 0.00 2.95 22.27
Eurekahedge Japan Hedge Fund Index -0.74 1.15 0.53
Eurekahedge Emerging Markets Hedge Fund Index 0.60 4.92 7.29
Eurekahedge Asia ex Japan Hedge Fund Index 1.57 5.27 -0.53
Eurekahedge Latin American Hedge Fund Index -0.33 5.67 18.77

Among regional mandates, Asia ex-Japan mandated hedge funds posted the best gains for the month, up 1.57% followed by European managers who were up 0.73% over the same period. Among strategic mandates, long/short equities hedge funds gained 1.07% followed by event driven hedge funds with 0.54% over the same period. Distressed debt hedge funds posted the steepest decline, down 1.21% for the month.

Latin American managers outshone regional peers in Q1 2017, with gains of 5.67% as Asia ex-Japan managers followed a close second at 5.27%. In terms of strategic mandates, long/short equities hedge fund managers posted the best Q1 2017, gaining 3.84% followed by event driven managers with a 3.72% increase.

Performance across regional indices was a mixed bag this month, with Asia ex-Japan hedge funds posting the best gains, up 1.57% with performance propped up by underlying Indian hedge fund managers who saw gains of 4.36% during March. Despite lacklustre equity market performance in Greater China, hedge fund managers who run a dedicated Greater China mandate also contributed to the strength in Asia ex-Japan managers with gains of 1.82% for the month. European hedge funds followed with gains of 0.73% backed by fair strength in the region’s equity markets and expectations over a hawkish ECB monetary policy stance over the coming months thanks to positive headline inflation in the Eurozone. North American hedge fund managers were also up for the month, gaining 0.48% largely outperforming the region’s equity markets. Strength in North American equity markets was led by the NASDAQ for the month, which gained 1.48% while other indices underperformed.

On the other hand, Japan and Latin American equity markets fell into negative territory this month, with losses of 0.74% and 0.33% respectively as equity markets lacked clear direction somewhere mid-month. While the Fed raised interest rates in line with expectations, investors were disappointed when the expectations of a speed up in tightening (more than three rate hikes) were not matched by the Fed’s outlook. Coupled with the unsuccessful healthcare reform and the sentiments on the ability of the administration to deliver campaign promises, the USD retreated during the month with the DXY index down 0.76%. The corresponding strength in the Yen led to selling of Japanese stocks mid-month with the Nikkei 225 Index down 1.10% for the month. Latin American managers were also down, declining 0.33% for the month with the IBOVESPA index declining 2.52% for the month surrounding concerns over a slowing growth rate, and expectations over commodity prices against the backdrop of weakening oil prices.

On a year-to-date basis, Latin American hedge funds managers posted the best gains, up 5.67% followed by Asia ex-Japan hedge funds with 5.27%. European and North American hedge funds were up 2.12% and 2.10% respectively followed by Japan mandated hedge funds with gains of 1.15% over the same year-to-date period.

Strategy Indices

Performance across strategic mandates were a mixed bag this month with distressed debt hedge fund managers posting the steepest decline, down 1.21%, underperforming the US high yield market which declined 0.21% during the month. This could be a result of potential improvements in yield prospects of competing asset classes, and the drawback in oil prices which could sabotage the recovery of underlying company assets in the medium-term.

CTA/managed future and macro mandated hedge funds followed behind with declines of 0.77% and 0.18% respectively over the same period. The weakness was led by underlying CTA sub-strategies with commodity-focused and trend-following hedge funds declining 1.60% and 1.57% respectively. Long positions in energy proved to be detrimental for managers as crude oil prices resumed a downtrend on the back of rising inventories and a less successful adherence of OPEC members to production cuts. In base metals, copper prices have eased during the month as concern over the Chilean mining protests appears to have panned out, resulting in losses over long positions in copper for the month. FX-focused hedge funds were up a modest 0.57% despite considerable weakness in the USD against major currencies which proved to be performance detractors for some managers. On the other hand, expectations on ECB tightening led to gains on managers bullish on the Euro this month.

On the other hand, long/short equities hedge fund managers posted the best gains this month, up 1.07% even though global equity market performance was mixed at best. Underlying long-bias managers led much of the strength gaining 1.51% while short-bias managers declined 0.51%. Strength in equity market performance was led by European markets with mixed to flat performance across Asian equity markets. However, with the unfolding of European politics in the coming months, we are yet to see if equity market performance on the back of improving economic outlook is sustainable. Over in Asia, concerns over Chinese debt woes and the government’s commitment to risk management and currency stability in the Chinese economy also plays an integral part in investors’ outlook of Asia over the coming months. Event driven and fixed income hedge funds follow next with gains of 0.54% and 0.41% respectively. Arbitrage and multi-strategy hedge funds were also in positive territory this month, gaining 0.35% and 0.33% respectively. Relative value hedge funds were up a marginal 0.05% for the month, with mixed performance among its underlying volatility strategies. Short volatility hedge fund managers led much of the strength this month, gaining 1.43%, however, this was offset by losses made by long volatility and tail-risk volatility managers who were down 2.02% and 1.40% respectively while relative value volatility hedge funds were up 0.64% for the month.

On a year-to-date basis, long/short equities hedge fund managers were up 3.84% followed by multi-strategy managers which gained 3.28%. Fixed income managers saw gains of 2.26% followed by distressed debt managers which were up 2.02% respectively. CTA/managed futures hedge fund managers however, were down 0.65% - the only strategic mandate to post year-to-date decline with considerable weakness led by underlying trend-following managers over the course of the first quarter.

Looking at the full list of Eurekahedge Strategy Indices in Table 1 below, equity long-bias and long/short equity managers feature strongly on a 2017 year-to-date basis, with gains of 5.58% and 3.84% respectively while at the other end of the spectrum, tail risk volatility and equity short-bias managers posted the steepest year-to-date losses, down 4.74% and 4.81% respectively.

Table 1: Index Flash Strategy Return Map

Eurekahedge Strategy Indices Mar
2017 Returns 2016 Returns
Eurekahedge Arbitrage Hedge Fund Index 0.35 1.20 4.65
Eurekahedge CTA/Managed Futures Hedge Fund Index -0.77 -0.65 1.47
Eurekahedge Distressed Debt Hedge Fund Index -1.21 2.02 13.30
Eurekahedge Event Driven Hedge Fund Index 0.54 3.72 10.10
Eurekahedge Fixed Income Hedge Fund Index 0.41 2.26 6.53
Eurekahedge Long Short Equities Hedge Fund Index 1.07 3.84 3.92
Eurekahedge Macro Hedge Fund Index -0.18 0.71 3.44
Eurekahedge Multi-Strategy Hedge Fund Index 0.33 3.28 4.80
Eurekahedge Relative Value Hedge Fund Index 0.05 1.81 7.35
CBOE Eurekahedge Long Volatility Hedge Fund Index -2.02 -4.27 -2.82
CBOE Eurekahedge Relative Value Volatility Hedge Fund Index 0.64 1.30 7.44
CBOE Eurekahedge Short Volatility Hedge Fund Index 1.43 3.38 5.09
CBOE Eurekahedge Tail Risk Hedge Fund Index -1.40 -4.74 -11.81
Eurekahedge Equity Long Bias Hedge Fund Index 1.51 5.58 5.35
Eurekahedge Equity Market Neutral Hedge Fund -0.02 0.63 -0.53
Eurekahedge Equity Short Bias Hedge Fund Index -0.51 -4.81 -7.35
Eurekahedge Trend Following Index -1.56 -0.88 -1.01
Eurekahedge FX Hedge Fund Index 0.57 0.44 0.50
Eurekahedge Commodity Hedge Fund Index -1.60 -0.03 7.00
Eurekahedge Global Hedge Fund Indices by Fund Size Mar
2017 Returns 2016 Returns
Eurekahedge Small Hedge Fund Index (< US$100m) 0.30 2.32 4.80
Eurekahedge Medium Hedge Fund Index (US$100m - US$500m) 0.17 2.02 4.28
Eurekahedge Large Hedge Fund Index (> US$500m) 0.69 2.20 2.66
Eurekahedge Billion Dollar Hedge Fund Index -0.05 1.49 2.40
Mizuho-Eurekahedge Indices Mar
2017 Returns 2016 Returns
Mizuho-Eurekahedge Index - USD 0.15 1.77 0.72
Mizuho-Eurekahedge TOP100 Index - USD -0.05 1.13 0.25
Mizuho-Eurekahedge TOP300 Index - USD 0.12 1.48 0.24
Asia-Eurekahedge Indices Mar
2017 Returns 2016 Returns
Eurekahedge Greater China Hedge Fund Index 1.82 6.87 -4.64
Eurekahedge India Hedge Fund Index 4.36 11.27 3.19

* Based on 40.88% of funds which have reported March 2017 returns as at 11 April 2017

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