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Index Flash Update - 13 November 2018

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Despite October bloodbath, 30% of global hedge funds avoid losses during the month with long volatility strategies up 4%

The Eurekahedge Hedge Fund Index slumped 2.19%1, in the volatile month of October, bringing year-to-date returns down to -2.08%. The MSCI AC World Index (Local) declined 7.33% in what turned out to be the worst month for both the hedge fund industry and the global equity market since 2011. North American hedge fund managers lost 2.25% over the month as underlying equity markets slumped despite robust economic fundamentals and the strong third quarter corporate earnings season in the US. Over in Asia, concerns over slowing economic growth and the Fed’s tightening exacerbated the equity selloff and weighed on the region’s currencies and equity markets, which have been under pressure of the US-China trade spat for the better part of the year. Asia ex-Japan hedge fund managers lost 4.70% in October, and are currently down 9.35% for the year. Long/short equities hedge fund managers bore the brunt of the equity market movement, which left them down 3.01% over the month. Preliminary numbers show that more than 80% of the fund managers utilising this strategy posted losses in October.

Barely a quarter of the underlying constituents of the Eurekahedge Hedge Fund Index avoided ending the month in the negative territory, and only 5.7% of the hedge fund managers were able to maintain double-digit year-to-date performance, the lowest proportion ever recorded by the Eurekahedge database. The asset-weighted Mizuho-Eurekahedge Index (USD) declined 1.75% during the month, narrowly outperforming the equal-weighted Eurekahedge Hedge Fund Index, indicating that the losses were heavier among the small-to-mid sized hedge fund managers. Indeed, the equal-weighted Eurekahedge Small Hedge Fund Index which comprises fund managers overseeing no more than US$100 million in assets was down 2.32%, in contrast to the 2.00% and 1.75% losses posted by medium (US$100 million to US$500 million) and large (above US$500 million) hedge funds.

Below are the key highlights for the month of October 2018
  •  Hedge funds were down 2.19% in October, ahead of the MSCI AC World Index (Local) which was down 7.33% over the month. Almost 90% of the hedge fund managers tracked by Eurekahedge outperformed the market index.

  • On an asset-weighted basis, hedge funds lost 1.75% in October, bringing their year-to-date losses to 2.95%, as captured by the Mizuho Eurekahedge Hedge Fund Index (USD).

  • Following 13 consecutive month of losses, long volatility focused hedge fund managers got it right in October and posted gains of 4.02% - the highest among all strategic mandates. Despite these heroics, the CBOE Eurekahedge Long Volatility Hedge Fund Index was still down 3.30% for the year.

  • North American fund managers continued to outperform their peers focusing on Asia or Europe, as they gained 0.91% as of October 2018 year-to-date. The underlying long/short equities managers in the region were still up 1.42% for the year in spite of the 3.87% loss they suffered last month.

  • US-imposed tariffs continued to weigh on returns as Greater China fund managers posted their 5th consecutive month of losses, with the mandate down 6.25% in October. On a year-to-date basis, the Eurekahedge Greater China Hedge Fund Index was down 13.83%, marking its worst performance over the first ten months of a year since the 2008 financial crisis.

  • All of the major strategic mandates were down in October, with long/short equities suffering the worst blow from the equity market selloff. The Eurekahedge Long Short Equities Hedge Fund Index declined 3.01% over the month and dragged its year-to-date return into the red for the first time this year.

  • Preliminary numbers showed that Indian hedge fund managers are down 3.73% throughout the month as the weaknesses in Indian equities and rupee weighed on fund managers’ performance. The Eurekahedge India Hedge Fund Index (USD) was down 19.69% for the year.

  • The bloodbath in October left AI/machine learning hedge funds at a loss, as the Eurekahedge AI Hedge Fund Index slumped 3.00% over the month - its worst monthly performance ever recorded since inception. In contrast to the 9.00% gains made in 2017, AI fund managers have lost 6.54% as of October 2018 year-to-date as they floundered through the year.

  • The Eurekahedge CTA/Managed Futures Hedge Fund Index was down 2.87% during the month as the plummeting oil and industrial metal prices dragged fund managers’ returns into the red. On a year-to-date basis, the index was down 4.44%, and the total AUM managed by CTA/managed futures hedge funds globally has decreased by US$21.3 billion, the majority of which was contributed by investor redemptions.

  • The Eurekahedge Crypto-Currency Hedge Fund Index which tracks hedge funds investing in crypto assets was down 4.17% in October, narrowly outperforming the Bitcoin price, which declined 4.32% over the month. On a year-to-date basis, the index was down 56.90%.

Index of the Month Oct
2018*
2018 Returns 2017 Returns
Eurekahedge Greater China Hedge Fund Index -6.25 -13.83 29.99

Main Indices

Main Eurekahedge Indices Oct
2018*
2018 Returns 2017 Returns
Eurekahedge Hedge Fund Index -2.19 -2.08 8.43
Eurekahedge Fund of Funds Index -3.14 -2.64 7.22
Eurekahedge Long-only Absolute Return Fund Index -4.94 -8.55 20.39
Eurekahedge Islamic Fund Index -2.92 -2.97 6.71

Regional Indices

Eurekahedge Regional Indices Oct
2018*
2018 Returns 2017 Returns
Eurekahedge North American Hedge Fund Index -2.25 0.91 8.03
Eurekahedge European Hedge Fund Index -1.88 -1.67 7.12
Eurekahedge Eastern Europe & Russia Hedge Fund Index -1.96 -8.39 10.78
Eurekahedge Japan Hedge Fund Index -3.04 -5.44 12.91
Eurekahedge Emerging Markets Hedge Fund Index -0.01 -3.98 17.01
Eurekahedge Asia ex Japan Hedge Fund Index -4.70 -9.35 20.78
Eurekahedge Latin American Hedge Fund Index 6.73 9.01 13.71

North American fund managers ended the month down 2.25%, with the underlying long/short equities mandate losing 3.87%, weighed down by the performance of the underlying equity market of the region. The S&P 500 index posted a loss of 6.94%, wiping most of the gains made throughout the year in the worst month for the index since 2011. In the same vein, the NYSE Composite Index was down 6.68%, while the tech-heavy NASDAQ Composite Index lost 9.20% over the month. European fund managers were also in the red during the month, with the Eurekahedge European Hedge Fund Index down 1.88%. Major equity indices in the Eurozone slumped throughout the month on the back of disappointing PMI, as well as political concerns over Italy’s budget dispute and Brexit. Over in Asia, slowing economic growth and weakening currencies continued to be the major themes in October, putting strains on the region’s equity markets. Hedge fund managers focusing on Greater China and India were down 6.25% and 3.73% respectively during the month.

Strategy Indices

Hedge fund performance across strategic mandates were universally red in October, with all of the major Eurekahedge strategy indices posting losses. Macro hedge fund managers topped the table by losing only 0.52% over the month, while on the other end of the spectrum long/short equities fund managers ended at the bottom of the table with a loss of 3.01%. Hedge fund managers utilising CTA/managed futures posted losses of 2.87% in October, marking it as the second worst month of the year for the strategy, trailing behind February, which saw the mandate down 4.12%. Equities featured prominently as a major performance detractor for fund managers in October, with energy sector following closely behind, as industrial metal and oil prices slid down. On the other hand, rate derivatives and FX positions were cited as performance contributors throughout the volatile month, especially for macro fund managers. Fund managers with long volatility views ended the month on the winning side, as they generated profits from the increase in market volatilities. The CBOE Eurekahedge Long Volatility Hedge Fund Index were up 4.02% during the month.

 

Table 1: Index Flash Strategy Return Map

Eurekahedge Strategy Indices Oct
2018*
2018 Returns 2017 Returns
Eurekahedge Arbitrage Hedge Fund Index -0.58 -0.62 5.28
Eurekahedge CTA/Managed Futures Hedge Fund Index -2.87 -4.44 2.23
Eurekahedge Distressed Debt Hedge Fund Index -1.62 5.71 6.67
Eurekahedge Event Driven Hedge Fund Index -2.86 -0.79 10.19
Eurekahedge Fixed Income Hedge Fund Index -0.82 0.69 6.57
Eurekahedge Long Short Equities Hedge Fund Index -3.01 -2.76 12.90
Eurekahedge Macro Hedge Fund Index -0.52 -1.37 4.02
Eurekahedge Multi-Strategy Hedge Fund Index -1.31 -1.44 8.70
Eurekahedge Relative Value Hedge Fund Index -1.19 2.24 6.83
CBOE Eurekahedge Long Volatility Hedge Fund Index 4.02 -3.30 -10.95
CBOE Eurekahedge Relative Value Volatility Hedge Fund Index -0.78 -0.11 3.23
CBOE Eurekahedge Short Volatility Hedge Fund Index -4.94 -10.04 9.06
CBOE Eurekahedge Tail Risk Hedge Fund Index -2.48 -7.57 -14.22
Eurekahedge Equity Long Bias Hedge Fund Index -4.70 -3.87 17.00
Eurekahedge Equity Market Neutral Hedge Fund Index -0.96 -0.56 3.85
Eurekahedge Trend Following Index -5.18 -8.27 0.34
Eurekahedge FX Hedge Fund Index 0.72 0.93 -0.19
Eurekahedge Commodity Hedge Fund Index -1.46 -4.38 1.29
Eurekahedge Crypto-Currency Hedge Fund Index -4.17 -56.90 1708.50
Eurekahedge AI Hedge Fund Index -3.00 -6.54 9.00
Eurekahedge Global Hedge Fund Indices by Fund Size Oct
2018*
2018 Returns 2017 Returns
Eurekahedge Small Hedge Fund Index (< US$100m) -2.32 -2.63 8.52
Eurekahedge Medium Hedge Fund Index (US$100m - US$500m) -2.00 -1.11 8.19
Eurekahedge Large Hedge Fund Index (> US$500m) -1.75 -1.48 6.56
Eurekahedge Billion Dollar Hedge Fund Index -1.70 -1.81 6.00
Mizuho-Eurekahedge Indices Oct
2018*
2018 Returns 2017 Returns
Mizuho-Eurekahedge Index - USD -1.75 -2.95 8.69
Mizuho-Eurekahedge TOP100 Index - USD -1.04 -1.71 6.76
Mizuho-Eurekahedge TOP300 Index - USD -1.47 -2.42 7.75
Asia-Eurekahedge Indices Oct
2018*
2018 Returns 2017 Returns
Eurekahedge Greater China Hedge Fund Index -6.25 -13.83 29.99
Eurekahedge India Hedge Fund Index -3.73 -13.39 27.90


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