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Index Flash Update - 10 July 2018

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Emerging markets focused hedge funds post fifth consecutive month of losses as US-China trade war weighs on market sentiment

June was another month of losses for hedge fund managers, with the Eurekahedge Hedge Fund Index slipping down 0.32%, underperforming the MSCI AC World Index (Local), which was down 0.21% over the same month. The escalation of the trade spat between the world’s two most powerful economies sent equity markets on a roller coaster ride over the second half of June. On June 15, the US fired the first shot in the trade war by imposing tariffs on US$50 billion of imports from China, effectively ending the transitory ceasefire which gave equity markets around the world some breathing room back in May. Not unexpectedly, China retaliated swiftly by imposing tariffs on US commodities and vehicles worth US$50 billion, only to be met with Trump administration’s threat of tariffs on another US$200 billion of imports from China. The first wave of the US Trade Representative tariffs kicked into action in the first week of July, affecting US$34 billion of Chinese goods, and the second wave of tariffs levied on the remaining US$16 billion of Chinese goods are expected to transpire within two weeks. Another highlight for the month was the conclusion of the Trump-Kim summit held in Singapore which seemed to end on a relatively positive note. Both sides pledged to establish a lasting and stable peace regime and work towards the complete denuclearisation of the Korean peninsula, without citing any concrete plan or deadline for the endeavour.

Roughly 44% of the underlying constituents of the Eurekahedge Hedge Fund Index were in the positive territory by the end of June, with event driven fund managers leading the pack, gaining 1.22% on average. Among regional mandates, managers with exposure towards Asia ex-Japan posted the steepest losses, declining 2.15% over the month owing to the poor performance of Chinese and Korean equity markets. On the other end of the spectrum, North American fund managers gained 0.25% in June, ending the month as the only regional mandate to post a positive gain.

Below are the key highlights for the month of June 2018
  • Hedge funds were down 0.32% in June ending the first half of 2018 on a flat note with a 0.06% gain. In contrast, the MSCI World Index (Local) was down 0.01% as of June 2018 year-to-date.

  • On a year-to-date basis, 5% of hedge fund managers have posted double digit gains, mostly concentrated on the North American long/short equities mandate. In contrast, almost 15% of fund managers posted double digit gains over the same period last year.

  • North American fund managers topped the table among geographic mandates, gaining 0.25% supported by the region’s equity markets which resisted the downward pressure inflicted by the US-China trade spat during the month. The S&P 500 index gained 0.48% in June, while the tech-heavy NASDAQ index was up 0.92%.

  • Greater China focused hedge funds were down 4.18% as the weakening of Chinese yuan and poor performance of Chinese equity markets weighed down on their returns. The Hang Seng Index slipped 4.97% in June, while the CSI 300 index which tracks major stocks listed in the mainland exchanges was down 7.66% over the same period.

  • Across strategic mandates, event driven funds lead with their 1.22% return over the month, bringing their year-to-date return to 2.63%. On the other hand, CTA/managed futures hedge funds lost 0.59% in June, pushing their year-to-date performance further into the red (-2.43%).

  • The Eurekahedge Relative Value Hedge Fund Index rallied 1.08% in June, despite the poor performance of the underlying sub-indices. Long volatility, short volatility and tail risk hedge funds posted losses of 1.04%, 1.55%, and 2.94% respectively over the month.

  • Contrary to the trend observed in May, hedge fund managers overseeing larger assets outperformed their smaller peers in June. The Eurekahedge Billion Dollar Hedge Fund Index gained 0.33% over the month, while on the other hand small hedge funds managing up to US$100 million in assets posted losses of 0.39% over the same period.

  • AI hedge funds posted losses for the third consecutive month, down 0.60% in June. This loss brought their year-to-date return down to -3.11%, placing them behind all of the primary strategic mandates.

  • The Eurekahedge Crypto-Currency Hedge Fund Index which tracks 16 hedge funds investing in crypto assets was down 11.02% in June amidst difficult crypto-currency market situation, yet still outperforming major crypto-currencies such as Bitcoin, Bitcoin Cash and Ethereum, which were down 14.69%, 26.45% and 21.50% respectively over the month.

Index of the Month Jun
2018*
2018 Returns 2017 Returns
CBOE Eurekahedge Short Volatility Hedge Fund Index -1.55 -9.39 9.06

Main Indices

Main Eurekahedge Indices Jun
2018*
2018 Returns 2017 Returns
Eurekahedge Hedge Fund Index -0.32 0.06 8.19
Eurekahedge Fund of Funds Index -0.45 0.61 7.20
Eurekahedge Long-only Absolute Return Fund -2.36 -2.74 20.44
Eurekahedge Islamic Fund Index -0.12 -0.76 6.73

Regional Indices

Eurekahedge Regional Indices Jun
2018*
2018 Returns 2017 Returns
Eurekahedge North American Hedge Fund Index 0.25 1.48 7.78
Eurekahedge European Hedge Fund Index -0.03 0.52 7.10
Eurekahedge Eastern Europe & Russia Hedge Fund Index -1.81 -2.36 10.56
Eurekahedge Japan Hedge Fund Index -0.53 -2.62 12.91
Eurekahedge Emerging Markets Hedge Fund Index -1.84 -0.91 16.88
Eurekahedge Asia ex Japan Hedge Fund Index -2.15 -0.39 20.76
Eurekahedge Latin American Hedge Fund Index -1.74 0.44 13.51

With the exception of North American hedge fund managers, all regional mandates ended the month of June in the red as a result of the escalation of the US-China trade spat and various political concerns around the globe. Despite firing the first shot in the recent trade war, the US equity markets mostly managed to resist the downward pressure inflicted on them over the month, with the S&P 500 index posting 0.48% gain. The Eurekahedge North American Hedge Fund Index was up 0.25% in June, bringing its 2018 year-to-date return up to 1.48%. Contrarily, Chinese equity markets took a serious beating, with the two major mainland exchanges down 6.38% (Shanghai Composite Index) and 9.05% (Shenzhen Composite Index). Meanwhile, the Hang Seng Index which tracks major stocks in the Hong Kong Exchange slumped 4.97%. Greater China focused fund managers were able to provide some downside protection for their investors and outperformed these equity indices by returning -4.18% in June, dragging their 2018 year-to-date performance into the red for the first time since the year started.

Over in Europe, fund managers posted a miniscule loss of 0.03% in June, outperforming the underlying equity markets as represented by the MSCI AC Europe Index in local currencies, which declined 0.54% over the month. Uncertainties around the Brexit negotiations and Italy’s ruling coalition, combined with the weakening of the Euro against major currencies following ECB’s announcement regarding the end of their quantitative easing policies by the end of the year weighed down on the region’s equity market performance.

Strategy Indices

Across strategic mandates, event driven hedge funds topped the table with their 1.22% gain over the month of June, supported by the M&A activities in the US. Notable performance contributors include long positions in Fox Group’s shares which skyrocketed during the month thanks to the bid war between Disney and Comcast, as well as Time Warner’s shares which were boosted by the court ruling allowing AT&T to acquire the company without additional conditions or remedies. Relative value fund managers came in second place, returning 1.08% over the month. Some relative value managers managed to exploit the S&P 500 index’s upward and then downward movement during the month by utilising index option strategies. On the other end of the spectrum, CTA/managed futures hedge funds posted the worst performance among major strategic mandates, losing 0.59% in June. Long positions in oil generated gains for some managers utilising this strategy, but those gains were outweighed by the losses incurred by the fall of agriculture and industrial metal prices due to the tariffs imposed by the US and China over the second half of the month. Crypto-currency hedge funds posted another month of losses, with the Eurekahedge Crypto-Currency Hedge Fund Index losing 11.02% in June, bringing their 2018 year-to-date return to -39.54% over the month.

On a year-to-date basis, distressed debt hedge funds maintained their position at the top with their 5.69% return, owing to the gains made earlier this year from their exposure to Puerto Rican debts. On the other hand, CTA/managed futures are down 2.43% as of June 2018 year-to-date, as fund managers utilising this strategy are still unable to recover the losses incurred in the volatile month of February this year. With the escalation of the US-China trade war around the corner, we might expect trading situation around the commodity markets to become more volatile and less predictable over the next few months.

Table 1: Index Flash Strategy Return Map

Eurekahedge Strategy Indices Jun
2018*
2018 Returns 2017 Returns
Eurekahedge Arbitrage Hedge Fund Index 0.11 -1.05 5.31
Eurekahedge CTA/Managed Futures Hedge Fund Index -0.59 -2.43 2.16
Eurekahedge Distressed Debt Hedge Fund Index 0.32 5.69 6.50
Eurekahedge Event Driven Hedge Fund Index 1.22 2.63 10.29
Eurekahedge Fixed Income Hedge Fund Index -0.02 0.36 6.57
Eurekahedge Long Short Equities Hedge Fund Index -0.53 0.80 12.78
Eurekahedge Macro Hedge Fund Index -0.09 -0.16 4.09
Eurekahedge Multi-Strategy Hedge Fund Index -0.56 -0.91 8.60
Eurekahedge Relative Value Hedge Fund Index 1.08 4.00 6.82
CBOE Eurekahedge Long Volatility Hedge Fund Index -1.04 -4.92 -10.95
CBOE Eurekahedge Relative Value Volatility Hedge Fund Index 0.34 -0.48 3.23
CBOE Eurekahedge Short Volatility Hedge Fund Index -1.55 -9.39 9.06
CBOE Eurekahedge Tail Risk Hedge Fund Index -2.94 -4.02 -14.22
Eurekahedge Equity Long Bias Hedge Fund Index -0.54 1.21 17.02
Eurekahedge Equity Market Neutral Hedge Fund -0.80 0.26 3.85
Eurekahedge Trend Following Index -0.98 -4.24 0.34
Eurekahedge FX Hedge Fund Index 1.04 0.93 -0.24
Eurekahedge Commodity Hedge Fund Index -1.58 -0.06 1.24
Eurekahedge Crypto-Currency Hedge Fund Index -11.02 -39.54 1708.50
Eurekahedge AI Hedge Fund Index -0.60 -3.11 9.35
Eurekahedge Global Hedge Fund Indices by Fund Size Jun
2018*
2018 Returns 2017 Returns
Eurekahedge Small Hedge Fund Index (< US$100m) -0.39 -0.30 8.35
Eurekahedge Medium Hedge Fund Index (US$100m - US$500m) -0.32 0.77 8.20
Eurekahedge Large Hedge Fund Index (> US$500m) -0.14 -0.16 6.51
Eurekahedge Billion Dollar Hedge Fund Index 0.33 -0.31 5.96
Mizuho-Eurekahedge Indices Jun
2018*
2018 Returns 2017 Returns
Mizuho-Eurekahedge Index - USD -0.11 -1.32 8.69
Mizuho-Eurekahedge TOP100 Index - USD 0.07 -1.28 6.76
Mizuho-Eurekahedge TOP300 Index - USD 0.01 -1.42 7.75
Asia-Eurekahedge Indices Jun
2018*
2018 Returns 2017 Returns
Eurekahedge Greater China Hedge Fund Index -4.18 -0.12 29.95
Eurekahedge India Hedge Fund Index -2.23 -5.87 27.64

* Based on 31.38% of funds which have reported June 2018 returns as at 10 July 2018


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