Index Flash Update - 11 October 2016

Hedge fund AUM expands at weakest pace since 2009 but managers post 7th straight month of gains

Hedge funds were flat to marginally negative at 0.06% during the month of August1 with much of this weakness led by underlying CTA/managed futures and macro mandated hedge funds. On the other hand, underlying markets as represented by the MSCI World Index (Local) were up 0.48%. Close to 60% of the underlying constituent hedge funds for the Eurekahedge Hedge Fund Index were in positive territory this month, with majority of them being long/short equity mandated. Asia ex-Japan hedge funds led performance among regional mandates this month, up 1.24% while distressed debt managers topped the table across strategies, gaining 1.77% over the same period.

As of 2016 year-to-date, close to 60% of managers were in positive territory with roughly 14% of these managers posting year-to-date returns in excess of 10% over the past eight months. Close to 40% of these managers are long/short equity mandated while another 20% are CTA/managed futures mandated hedge funds.

Key takeaways for the month of September 2016:
  • Hedge funds gained 0.50% during the month and are up 3.35% year-to-date. The US$2.26 trillion hedge fund industry grew by US$17.6 billion year-to-date, down from a US$93.4 billion growth over the same period in 2015. Fund liquidations outpaced new launches globally with a total of 548 closures for 500 launches as of 2016 year-to-date.
  • Event driven hedge funds were up 0.54% during the month, and up 6.81% year-to-date as positions in M&A deals within the F&B, pharmaceuticals and technology sector lead performance. Roughly 18% of actively-reporting event driven hedge funds posted double digit returns as of 2016 year-to-date.
  • On a year-to-date basis, North American hedge fund managers were up 5.40% while their European and Japanese counterparts were in the red – down 0.46% and 2.93% respectively.
  • The Eurekahedge Distressed Debt Hedge Fund Index posted the best returns among strategic mandates in September and was up 1.07% during the month. Managers also posted impressive year-to-date gains, up 8.66% - the best year-to-date returns for the strategy on record.
  • Latin American long/short equities hedge funds posted the best year-to-date gains, up 20.42% while Japanese long/short equities hedge funds fared the worst, losing 2.98% over the year.
  • Asia ex-Japan hedge fund managers gained 0.53% during the month, with strength being led by underlying Greater China and India mandated hedge funds which were up 0.73% and 1.82% respectively over the same period.
Index of the Month Sep
2016 Returns 2015 Returns
Eurekahedge Distressed Debt Hedge Fund Index 1.07 8.66 -4.25

Main Indices

Main Eurekahedge Indices Sep
2016 Returns 2015 Returns
Eurekahedge Hedge Fund Index 0.50 3.35 1.64
Eurekahedge Fund of Funds Index 0.18 -0.68 0.42
Eurekahedge Long-only Absolute Return Fund 0.73 7.91 -1.73
Eurekahedge Islamic Fund Index 0.23 2.49 -1.85

Regional Indices

Eurekahedge Regional Indices Sep
2016 Returns 2015 Returns
Eurekahedge North American Hedge Fund Index 0.91 5.40 -0.20
Eurekahedge European Hedge Fund Index 0.39 -0.46 4.90
Eurekahedge Eastern Europe & Russia Hedge Fund Index 0.37 15.10 -0.13
Eurekahedge Japan Hedge Fund Index 1.35 -2.93 6.83
Eurekahedge Emerging Markets Hedge Fund Index 0.62 7.68 3.13
Eurekahedge Asia ex Japan Hedge Fund Index 0.53 2.39 7.73
Eurekahedge Latin American Hedge Fund Index 0.77 17.15 0.58

All regional mandates were positive in September with Japan managers leading performance among regional mandates, up 1.35% despite the Nikkei 225 and Tokyo Topix ending the month down 2.59% and 0.51% respectively. Japanese equity markets traded higher at the start of the month as better US jobs data led to some weakness in the yen. However, Japanese markets declined as the Fed postponed the much anticipated rate hike and together with the concerns over the Deutsche Bank saga, yen was driven higher towards month-end. Across sectors, Japan managers gained on exposure into energy and consumer discretionary while financial stocks led weakness. North American hedge funds gained 0.91%, beating the S&P 500 Index which declined 0.12% during the month as a series of events from the US Presidential Debate and banking woes from Europe led to investor jitters. Latin American hedge funds were also up this month, gaining 0.77%, outperforming the MSCI Latin America Index IMI (Local) which declined 0.30%. Emerging markets mandated hedge funds gained 0.62% in September, buoyed by support from oil price recovery resulting from encouraging outcome of the recent OPEC meeting. Lacklustre performance of underlying Asian markets did not deter Asia ex-Japan managers from posting gains of 0.53% during the month, beating the MSCI Asia ex-Japan Index (Local) which fell 0.59% over the same period.

On a year-to-date basis, Latin American hedge funds led the table, gaining 17.15% over the past nine months with performance held up by the region’s well-performing equity markets. Brazil’s Ibovespa Index gained 34.64% year-to-date, allowing managers to profit from their long books throughout the past nine months. Broader emerging market mandated hedge funds also posted impressive year-to-date gains, up 7.68% with performance supported by recovering oil prices and the intermittent weakness of the USD vis-à-vis commodity currencies propping performance of underlying emerging markets commodities. North American managers were also up year-to-date, gaining 5.40% followed by Asia ex-Japan managers which posted gains of 2.39%. On the other hand, European and Japanese managers were down 0.46% and 2.93% year-to-date respectively.

Strategy Indices

Performance was mixed across strategic mandates, with macro mandated hedge funds being the only strategic mandate to post negative returns during the month. Macro mandated hedge funds lost 0.50% in September with funds positioned for central bank announcements and OPEC inaction seeing some losses. On the other hand, distressed debt hedge funds led performance across strategic mandates with gains of 1.07% during the month as recovering oil prices and some M&A activity within the energy sector propped up valuations of underlying assets. As a result, distressed debt managers were able to reap returns from the previous purchase of troubled assets during the downtrend in oil prices. Long/short equities hedge fund managers gained 0.73% in September with underlying equity long bias hedge funds up 0.71%, despite lacklustre performance of global equity markets.

Relative value hedge fund managers gained 0.72% during the month with performance supported by underlying opportunistic volatility strategies, represented by the CBOE Eurekahedge Relative Value Volatility Hedge Fund Index, which gained 0.78% over the same period. While volatility levels were subdued towards the end of the month, the VIX Index traded higher particularly in the middle of the month, before declining in the final week of September. Arbitrage managers gained 0.58%, followed by event driven hedge fund managers which were up 0.54% as exposure into M&A deals within F&B, pharmaceuticals and technology industries among performance drivers. Multi-strategy and CTA/managed futures hedge funds were also up in September gaining 0.47% and 0.33% respectively during the month. The performance of CTA/managed futures managers was led by exposure into long energy, commodities and short GBP/USD positions with underlying commodity hedge funds, represented by the Eurekahedge Commodity Hedge Fund Index gaining 0.51% while trend following hedge funds, also a sub-set of the broad CTA index, declined 1.14% during the month.

On a year-to-date basis, distressed debt hedge funds lead the table, up 8.66% followed by event driven and relative value hedge funds which gained 6.81% and 6.21% respectively as M&A activity and current price dislocations of underlying assets present ample opportunities for managers. Given that the oil recovery remain sustainable towards Q4 2016, distressed debt hedge funds could be on track as the best performing hedge fund strategy this year.

Eurekahedge Strategy Indices Sep
2016 Returns 2015 Returns
Eurekahedge Arbitrage Hedge Fund Index 0.58 4.39 4.93
Eurekahedge CTA/Managed Futures Hedge Fund Index 0.33 2.44 -0.43
Eurekahedge Distressed Debt Hedge Fund Index 1.07 8.66 -4.25
Eurekahedge Event Driven Hedge Fund Index 0.54 6.81 -1.16
Eurekahedge Fixed Income Hedge Fund Index 0.29 4.98 0.98
Eurekahedge Long Short Equities Hedge Fund Index 0.73 2.44 3.04
Eurekahedge Macro Hedge Fund Index -0.15 1.46 1.57
Eurekahedge Multi-Strategy Hedge Fund Index 0.47 3.81 2.28
Eurekahedge Relative Value Hedge Fund Index 0.72 6.21 1.31
CBOE Eurekahedge Long Volatility Hedge Fund Index -0.12 -1.27 -1.07
CBOE Eurekahedge Relative Value Volatility Hedge Fund Index 0.78 6.94 4.47
CBOE Eurekahedge Short Volatility Hedge Fund Index 0.43 1.52 1.09
CBOE Eurekahedge Tail Risk Hedge Fund Index 0.07 -9.13 -9.51
Eurekahedge Equity Long Bias Hedge Fund Index 0.71 3.35 -0.34
Eurekahedge Equity Market Neutral Hedge Fund 0.60 -0.80 7.47
Eurekahedge Equity Short Bias Hedge Fund Index -1.64 -9.90 5.09
Eurekahedge Trend Following Index -1.14 1.54 -2.18
Eurekahedge FX Hedge Fund Index -0.69 -0.93 6.05
Eurekahedge Commodity Hedge Fund Index 0.51 8.47 -4.81
Eurekahedge Global Hedge Fund Indices by Fund Size Sep
2016 Returns 2015 Returns
Eurekahedge Small Hedge Fund Index (< US$100m) 0.66 3.79 1.27
Eurekahedge Medium Hedge Fund Index (US$100m - US$500m) 0.30 2.86 2.71
Eurekahedge Large Hedge Fund Index (> US$500m) 0.15 1.81 2.24
Eurekahedge Billion Dollar Hedge Fund Index 0.12 1.50 1.72
Mizuho-Eurekahedge Indices Sep
2016 Returns 2015 Returns
Mizuho-Eurekahedge Index - USD 0.17 1.24 -0.69
Mizuho-Eurekahedge TOP100 Index - USD -0.07 0.25 0.85
Mizuho-Eurekahedge TOP300 Index - USD 0.04 0.58 0.00
Asia-Eurekahedge Indices Sep
2016 Returns 2015 Returns
Eurekahedge Greater China Hedge Fund Index 0.73 -1.20 10.24
Eurekahedge India Hedge Fund Index 1.82 8.72 4.11

* Based on 37.83% of funds which have reported September 2016 returns as at 11 October 2016

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