Index Flash Update - 14 November 2017







CTAs and Macros shine in October as hedge funds continue winning streak

Hedge funds gained 1.32%1 during the month of October. Meanwhile underlying markets, as represented by the MSCI AC Word Index (Local), gained 2.56% over the same period. Roughly 77% of the underlying constituent hedge funds for the Eurekahedge Hedge Fund Index were in positive territory this month thanks to a broad-based rally in global equity markets and an improving investor risk appetite. Asia ex-Japan managers led the performance among regional mandates this month, and were up 2.76% while CTA/managed futures managers topped the table across strategies, gaining 2.73% over the same period.

The trading scene in October was affected by a series of macro data, central bank announcements, OPEC and to a lesser extent the passage of Trump’s tax reform and choice of next Fed chair. Geopolitical tensions surrounding Iraq and expectation of an extensive OPEC production cuts led to some support for oil prices. Investor optimism remained buoyed as the Trump administration’s proposed tax reforms made some progress in the Senate. While lacklustre inflation data remains a concern for a possible rate hike in December, strong macroeconomic data in US could put the central bank on track for its next rate hike. However, given the impact of the hurricane seasons on US economy this year, macroeconomic data could likely surprise on the downside, in which case it will be interesting to see if the Fed can follow up on its resolve to normalize rates. In the Eurozone and elsewhere in the world, economic data for Q3 2017 was largely encouraging with indicators pointing towards global economic expansion. Over in Japan, Abe’s expected election victory pushed Japanese stocks to all-time high with Nikkei 225 rallying sharply on expectations of continuity in Abe’s economic and monetary policies.

Below are the key highlights for the month of October 2017
  • Hedge funds gained 1.32% in October with underlying markets, as represented by the MSCI AC World Index (Local), up 2.56% over the same period. On a year-to-date basis, managers gained 6.99% while underlying markets were up 14.84%.

  • The Eurekahedge Trend Following Hedge Fund Index, a sub-group of the broad CTA Index outshone in October, was up 4.86% during the month as winning trends in equities, base metals and energy contributed positively to performance.

  • Asia ex-Japan mandates led the gains in 2017 year-to-date, up 18.22%, with Greater China and India mandated hedge funds were up 26.34% and 23.80% respectively.

  • Among developed mandates, Japanese hedge funds gained 1.86%, followed by European and North American counterparts which were up 0.55% and 0.22% for the month respectively. On a year-to-date basis, Japanese managers were up 10.87% followed by European and North American managers who posted gains of 6.61% and 4.58% respectively.

  • All strategic mandates were up this month with CTA/managed futures hedge funds posting the best returns of 2.73%, followed by macro and multi-strategy hedge funds gaining 1.94% and 1.46% respectively.

  • Long/short equities hedge funds were up 0.98% in October with equity long bias hedge funds posting an impressive 1.39% gain, boosted by the broad-based rally in the global equity markets during the month.

  • Among volatility-focused hedge funds, short volatility hedge funds topped the table for October, gaining 0.55%, while long-volatility hedge funds posted a declined, down 0.79%. On a year-to-date basis, short volatility hedge funds gained 8.12% while long volatility hedge funds were down 9.65% year-to-date.

Index of the Month Oct
2017 Returns 2016 Returns
CBOE Eurekahedge Short Volatility Hedge Fund Index 0.55 8.12 5.09

Main Indices

Main Eurekahedge Indices Oct
2017 Returns 2016 Returns
Eurekahedge Hedge Fund Index 1.32 6.99 4.59
Eurekahedge Fund of Funds Index 1.37 6.28 -0.03
Eurekahedge Long-only Absolute Return Fund 2.05 18.37 7.50
Eurekahedge Islamic Fund Index -0.10 5.21 4.14

Regional Indices

Eurekahedge Regional Indices Oct
2017 Returns 2016 Returns
Eurekahedge North American Hedge Fund Index 0.22 4.58 7.83
Eurekahedge European Hedge Fund Index 0.55 6.61 0.28
Eurekahedge Eastern Europe & Russia Hedge Fund Index -1.52 9.07 23.08
Eurekahedge Japan Hedge Fund Index 1.86 10.87 1.72
Eurekahedge Emerging Markets Hedge Fund Index 1.01 14.83 7.12
Eurekahedge Asia ex Japan Hedge Fund Index 2.76 18.22 -0.41
Eurekahedge Latin American Hedge Fund Index -1.17 12.79 18.07

Performance across regional mandates was a mixed bag in October, with Asia ex-Japan hedge funds leading the table, up 2.76% during the month, followed by Japanese managers which gained 1.86% as most Asian equity markets ended the month in positive territory. Solid US macro data and increasing likelihood of possible rate hike in December, lend some support to the USD which gained against major Asian currencies. The Nikkei 225 Index up 8% on the back of a weaker yen. Emerging markets mandated hedge funds gained 1.01% in October, buoyed by support from oil price recovery resulting from supply concerns. European managers were also in positive territory during the month, with managers posting gains of 0.55%. North American hedge funds were up 0.22%, backed by the strong performance of US equities during the month. On the other hand, Latin American hedge funds ended the month in negative territory, down 1.17%. High inflation numbers, disruptions caused by two earthquakes and a number of hurricanes weighed on the contracted Q3 GDP figures in Mexico that put pressure on Mexican equities. Mexico IPC index ended in the red, declining 3.42% while Brazil’s Ibovespa Index posted flat gains.

On a year-to-date basis, Asia ex-Japan hedge fund managers topped the tables, and were up 18.22%, with underlying Greater China dedicated and India dedicated mandates gained 26.34% and 23.80% respectively. Emerging markets were also up year-to-date, gaining 14.83% with Latin American hedge funds posted returns of 12.79% over the same period. Japanese, European and North American hedge funds were also in positive territory year-to-date, gaining 10.87%, 6.61% and 4.58% respectively.

Strategy Indices

Returns across hedge fund strategic mandates were positive across the board, with CTA/managed futures hedge funds emerging as the clear winners during the month. The Eurekahedge CTA/managed Futures Hedge Fund Index was up 2.73% in October with managers reporting strong gains from their exposure to energy, base metals and long position in USD pairs. Tensions in Kirkuk, Iraq and expectations of possible disruptions to oil supply led to a rise in oil prices which saw managers benefit of their long positions. On the FX front, gains realized from long exposure into the USD versus other major currencies and short exposure to euro, while short USD positions against GBP resulted in losses as Brexit fifth round of talks showed little signs of progress. The optimism over the Trump administration’s proposed tax reforms coupled with improving macro data out of the US, lend some support to the greenback with managers exposed to long USD currency pairs realising good gains during the month while manager’s with long positions into gold served as a performance detractor as anticipation on the Fed rate hike builds up. The recent ECB announcement also weighed on EUR/USD which resulted in gains for managers short on the Euro. Among underlying sub-strategies within the CTA/managed futures mandate, trend-following hedge fund managers posted an impressive gains of 4.86%, followed by commodity and FX focused managers with gains of 0.70% and 0.28% respectively. Macro mandated hedge funds followed next with gains of 1.94% in October with funds positioned for central bank announcements and OPEC production cut tightening seeing some gains. Managers reported gains on long positions in US financials, short 10 year treasuries, long oil and short gold positions.

Multi-strategy and long/short equities hedge fund managers posted returns of 1.46% and 0.98% respectively with exposure into underlying equities and equity indices among contributors to performance with underlying equity long bias hedge funds up 1.39%. Following positive and improving news in US, global equities also rode on this wave, supporting managers’ long-book trades in October. Distressed debt hedge funds gained 0.83% during the month as improving risk appetite in October led to gains in the leveraged loans2 and high yield3 credit space. Fixed income and arbitrage hedge fund managers were also in positive territory during the month, up 0.55% and 0.40% respectively followed by event driven which gained 0.29% over the same period. Relative value mandated hedge funds were also up 0.29% with support by underlying short volatility hedge fund managers. This is represented by the CBOE Eurekahedge Short Volatility Hedge Fund Index, which gained 0.55% during the month.

On a year-to-date basis, long/short equities and multi-strategy hedge fund managers were up 10.02% and 9.25% respectively. This is followed by event driven and fixed income hedge fund managers who posted gains of 8.19% and 6.27% respectively. Distressed debt hedge fund managers gained 6.24% followed by relative value and macro mandates with gained 4.70% each over the same year-to-date period. Arbitrage hedge funds were also up year-to-date, gaining 4.00%.

Table 1: Index Flash Strategy Return Map

Eurekahedge Strategy Indices Oct
2017 Returns 2016 Returns
Eurekahedge Arbitrage Hedge Fund Index 0.40 4.00 4.93
Eurekahedge CTA/Managed Futures Hedge Fund Index 2.73 1.85 1.82
Eurekahedge Distressed Debt Hedge Fund Index 0.83 6.24 13.15
Eurekahedge Event Driven Hedge Fund Index 0.29 8.19 10.47
Eurekahedge Fixed Income Hedge Fund Index 0.55 6.27 6.60
Eurekahedge Long Short Equities Hedge Fund Index 0.98 10.02 3.78
Eurekahedge Macro Hedge Fund Index 1.94 4.70 3.49
Eurekahedge Multi-Strategy Hedge Fund Index 1.46 9.25 5.12
Eurekahedge Relative Value Hedge Fund Index 0.29 4.70 7.28
CBOE Eurekahedge Long Volatility Hedge Fund Index -0.79 -9.65 -2.82
CBOE Eurekahedge Relative Value Volatility Hedge Fund Index 0.37 2.65 7.44
CBOE Eurekahedge Short Volatility Hedge Fund Index 0.55 8.12 5.09
CBOE Eurekahedge Tail Risk Hedge Fund Index 0.12 -9.68 -11.81
Eurekahedge Equity Long Bias Hedge Fund Index 1.39 14.29 5.31
Eurekahedge Equity Market Neutral Hedge Fund 0.91 3.69 -0.41
Eurekahedge Equity Short Bias Hedge Fund Index 0.43 -14.25 -7.35
Eurekahedge Trend Following Index 4.86 0.21 -1.01
Eurekahedge FX Hedge Fund Index 0.28 0.23 0.91
Eurekahedge Commodity Hedge Fund Index 0.70 0.01 6.98
Eurekahedge Global Hedge Fund Indices by Fund Size Oct
2017 Returns 2016 Returns
Eurekahedge Small Hedge Fund Index (< US$100m) 1.29 7.04 4.96
Eurekahedge Medium Hedge Fund Index (US$100m - US$500m) 1.33 7.47 4.31
Eurekahedge Large Hedge Fund Index (> US$500m) 1.36 5.44 2.73
Eurekahedge Billion Dollar Hedge Fund Index 1.61 4.78 2.47
Mizuho-Eurekahedge Indices Oct
2017 Returns 2016 Returns
Mizuho-Eurekahedge Index - USD 1.10 7.28 0.72
Mizuho-Eurekahedge TOP100 Index - USD 1.50 5.72 0.25
Mizuho-Eurekahedge TOP300 Index - USD 1.26 6.59 0.24
Asia-Eurekahedge Indices Oct
2017 Returns 2016 Returns
Eurekahedge Greater China Hedge Fund Index 3.04 26.34 -4.44
Eurekahedge India Hedge Fund Index 3.83 23.80 3.85

* Based on 52.91% of funds which have reported October 2017 returns as at 14 November 2017

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