Index Flash Update - 12 June 2018







Hedge funds continue recovery despite losses for fixed income, macro and AI hedge fund strategies

Hedge fund managers ended May in the green, with the Eurekahedge Hedge Fund Index up 0.18% over the month, trailing behind the 0.84% gain posted by the MSCI AC World Index over the same period. Concerns over the US-China trade spat have somewhat diminished, with both sides calling a truce. China offered to increase imports of US goods to reduce the trade imbalance between the two countries, and cut down import duties on passenger vehicles, which have previously been touted as 'unfair' by the US president. Meanwhile, Trump is scheduled to meet with North Korea's leader in Singapore to discuss a potential denuclearisation deal for the country. The success of the summit scheduled to take place on 12 June 2018 may prevent further escalation of geopolitical tension around the Korean peninsula and provide a much needed relief for global markets. Developed markets continued to outperform their emerging market counterparts in May, as Asian and Latin American countries came under the pressure on account of geopolitical concerns and strong greenback as indicated by the US dollar index's 2.34% gain over the month. Global economic outlook remains positive, supported by the recovery in investment and global trade growths, as well as supportive fiscal policies. However, rising interest rates might pose risks for countries and corporations with high debt levels. It also remains to be seen how the US-China trade war would resolve once the ceasefire is called off.

Roughly 54% of the underlying constituents of the Eurekahedge Hedge Fund Index were in the positive territory by end-May, with event driven fund managers leading the pack, gaining 1.69%. Among regional mandates, managers with exposure toward Eastern Europe & Russia and Latin America posted the gravest losses, with both indices declining more than 4% over the month. On the other end of the spectrum, North American fund managers gained 1.14% in May, pushing their year-to-date returns to 0.84%.

Below are the key highlights for the month of May 2018
  • Hedge funds gained 0.18% in May with the underlying markets, as represented by the MSCI AC World Index up 0.84% over the same period. On a year-to-date basis, fund managers gained 0.32% with 14% of them posting returns in excess of 5%.

  • North American fund managers topped the table among geographic mandates, gaining 1.14% supported by the region's equity markets which performed well during the month. The S&P 500 index gained 2.16% in May, while the tech-heavy NASDAQ index rallied 5.61%. Eastern Europe and Latin America focused hedge funds posted steep losses as the strengthening of the US dollar weighed down on their returns.

  • Across strategic mandates, event driven funds lead with their 1.69% return over the month, which brought their year-to-date return to 2.01%. On the other hand, fixed income managers lost 0.79% in May, bringing their year-to-date performance into the red for the first time in the year.

  • The Eurekahedge CTA/Managed Futures Hedge Fund Index slipped down 0.08% in May, despite the positive performance of the underlying sub-indices. Commodity, FX and trend following hedge funds gained 0.99%, 0.54% and 0.13% respectively over the same period.

  • Fund managers overseeing more than US$500 million in assets underperformed their smaller peers, with the Eurekahedge Large Hedge Fund Index and the Eurekahedge Billion Dollar Hedge Fund Index down 0.41% and 0.95% respectively in May. On the other hand, small and medium hedge funds gained 0.38% and 0.08% respectively over the same period.

  • AI hedge funds were down for the second consecutive month, losing 1.58% in May. This loss brought their year-to-date return down to -2.71%, placing them near the bottom of the heap among all strategic mandates.

  • The recovery of crypto-currency hedge funds proved to be short-lived, as preliminary numbers indicated an 11.66% loss in May, dragging their year-to-date performance deeper into the red. The Eurekahedge Crypto-Currency Hedge Fund Index is down 22.71% year-to-date while bitcoin prices have declined by 45.98% over the same period.

Index of the Month May
2018 Returns 2017 Returns
CBOE Eurekahedge Short Volatility Hedge Fund Index 1.11 -6.86 9.06

Main Indices

Main Eurekahedge Indices May
2018 Returns 2017 Returns
Eurekahedge Hedge Fund Index 0.18 0.32 8.59
Eurekahedge Fund of Funds Index 0.32 0.80 7.19
Eurekahedge Long-only Absolute Return Fund -0.59 -0.07 20.97
Eurekahedge Islamic Fund Index -1.01 -0.45 6.73

Regional Indices

Eurekahedge Regional Indices May
2018 Returns 2017 Returns
Eurekahedge North American Hedge Fund Index 1.14 0.84 8.02
Eurekahedge European Hedge Fund Index 0.17 0.65 7.10
Eurekahedge Eastern Europe & Russia Hedge Fund Index -4.36 -2.11 10.56
Eurekahedge Japan Hedge Fund Index 0.20 -1.79 12.91
Eurekahedge Emerging Markets Hedge Fund Index -2.38 -0.65 16.84
Eurekahedge Asia ex Japan Hedge Fund Index 0.51 1.06 20.75
Eurekahedge Latin American Hedge Fund Index -4.14 1.03 13.51

Across geographic mandates, performance was a mixed bag with North American hedge funds in the lead, returning 1.14% in May, bringing their year-to-date returns back to positive territory after spending three consecutive months underwater. American equity markets showed solid performance over the month with major indices posting positive gains, as concerns over potential trade war with China started to dwindle. Nearing the end of the month, both the US and North Korea confirmed that the Trump-Kim summit will indeed take place, after various spat between the two parties, which almost ended in the withdrawal of the US from the summit. European fund managers generated meagre but still positive return of 0.17% in May, as the resurgence of political risks in Italy whittled down the gains made by managers over the month.

Fund managers focusing on emerging markets, especially Eastern Europe and Latin America posted the steepest losses over the month, with the Eurekahedge Eastern Europe & Russia Hedge Fund Index down 4.36% and the Eurekahedge Latin American Hedge Fund Index down 4.14%. Fund managers with high exposure to Russia suffered losses due to the trend reversal in the equity market’s recovery after the significant decline back in April. The signal of recovery in early May prompted fund managers to go into long positions, only to discover that not only did the rally stall, but also that large cap equities underperformed the benchmark index, exacerbating the losses. Over in Latin America, the strength of the US dollar put significant downforce on Mexican and Brazilian managers. On top of that, Mexican equities came under pressure as NAFTA renegotiation stalled, while Brazil’s economy was paralysed for nearly two weeks thanks to the countrywide trucker strike over diesel price. These challenges wiped a significant portion of the gains made by Latin American fund managers over the first four months of 2018, and allowed Asia ex-Japan managers to top the regional mandate table on a year-to-date basis with their 1.06% return.

Strategy Indices

Looking at strategic mandates, event driven hedge fund managers lead the pack with their 1.69% gain over the month of May, supported by the M&A activities in the banking sector, as major organisations such as the ECB and the IMF began urging consolidation, contrary to how they have historically positioned themselves on M&A among large banks. Major performance contributors to event driven hedge funds in May include the spin-off of Altice USA from the Netherlands based parent company, as well as the potential acquisition of NXPI by Qualcomm. Relative value hedge funds gained 0.53% in May, with three of the four underlying volatility strategies posting positive gains over the month, as the CBOE VIX Index dropped to levels last seen before the spike in early February this year. The CBOE Eurekahedge Relative Value Volatility Index gained 1.55% in May, outperforming its volatility index peers.

CTA/managed futures hedge funds lost 0.08% over the month, despite the strong performance of its underlying sub-strategies. The Eurekahedge Commodity Hedge Fund Index gained 0.99% in May, supported by rising industrial metal prices, especially nickel, as indicated by the S&P GSCI Nickel Index’s 11.52% over the month. On the other hand, the Eurekahedge FX Hedge Fund Index gained 0.54%, with strong US dollar being the major theme again. Long US dollar positions against Turkish lira, Brazilian real, as well as Mexican peso were among key contributors to performance for FX fund managers. Meanwhile, fixed income hedge fund managers ranked last among the major strategic mandates, losing 0.79% in May as the Italian president Sergio Mattarella's decision to veto the new coalition’s proposal for finance minister triggered a BTP selloff due to investors fleeing to safer German and US treasuries. The 10-year US treasury yield slid back to around the 2.8% mark by the end of May.

On a year-to-date basis, distressed debt hedge funds maintained their position at the top with their 4.48% return, owing to the gains made earlier this year from their exposure to Puerto Rican debts. On the other end of the spectrum, CTA/managed futures are still down 1.56% as of May 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. Fund managers trading crypto-currency assets are still down 22.71%, as the prices of major coins failed to recover to their pre-2018 levels. Bitcoin price has fallen 45.98% as of May 2018 year-to-date.

Table 1: Index Flash Strategy Return Map

Eurekahedge Strategy Indices May
2018 Returns 2017 Returns
Eurekahedge Arbitrage Hedge Fund Index 0.55 -0.95 5.31
Eurekahedge CTA/Managed Futures Hedge Fund Index -0.08 -1.56 2.26
Eurekahedge Distressed Debt Hedge Fund Index 0.39 4.48 6.50
Eurekahedge Event Driven Hedge Fund Index 1.69 2.01 10.27
Eurekahedge Fixed Income Hedge Fund Index -0.79 -0.09 6.48
Eurekahedge Long Short Equities Hedge Fund Index 0.50 0.89 12.67
Eurekahedge Macro Hedge Fund Index -0.08 0.16 3.93
Eurekahedge Multi-Strategy Hedge Fund Index -0.50 -0.48 8.40
Eurekahedge Relative Value Hedge Fund Index 0.53 2.85 6.81
CBOE Eurekahedge Long Volatility Hedge Fund Index 0.04 -3.45 -10.95
CBOE Eurekahedge Relative Value Volatility Hedge Fund Index 1.55 -0.31 3.23
CBOE Eurekahedge Short Volatility Hedge Fund Index 1.11 -6.86 9.06
CBOE Eurekahedge Tail Risk Hedge Fund Index -0.40 -0.68 -14.22
Eurekahedge Equity Long Bias Hedge Fund Index 0.74 1.37 17.02
Eurekahedge Equity Market Neutral Hedge Fund 0.47 1.42 3.85
Eurekahedge Trend Following Index 0.13 -2.80 0.34
Eurekahedge FX Hedge Fund Index 0.54 0.18 -0.24
Eurekahedge Commodity Hedge Fund Index 0.99 2.20 1.24
Eurekahedge Crypto-Currency Hedge Fund Index -11.66 -22.71 1708.50
Eurekahedge AI Hedge Fund Index -1.58 -2.71 9.35
Eurekahedge Global Hedge Fund Indices by Fund Size May
2018 Returns 2017 Returns
Eurekahedge Small Hedge Fund Index (< US$100m) 0.38 0.19 8.92
Eurekahedge Medium Hedge Fund Index (US$100m - US$500m) 0.08 0.89 8.58
Eurekahedge Large Hedge Fund Index (> US$500m) -0.41 -0.30 6.47
Eurekahedge Billion Dollar Hedge Fund Index -0.95 -1.11 5.95
Mizuho-Eurekahedge Indices May
2018 Returns 2017 Returns
Mizuho-Eurekahedge Index - USD -1.72 -1.83 8.69
Mizuho-Eurekahedge TOP100 Index - USD -1.75 -2.04 6.76
Mizuho-Eurekahedge TOP300 Index - USD -1.84 -2.07 7.75
Asia-Eurekahedge Indices May
2018 Returns 2017 Returns
Eurekahedge Greater China Hedge Fund Index 1.04 1.98 29.95
Eurekahedge India Hedge Fund Index -1.00 -2.31 28.09

* Based on 35.81% of funds which have reported May 2018 returns as at 11 June 2018

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