Hedge funds started 2015 on a good note, gaining 1.29%1 and outperforming underlying markets as the MSCI World Index2 slipped 0.41%. Global equity markets displayed mixed performance in January as the economic picture remained weak with fears mounting about a lack of global demand and high sovereign debt burdens. Volatility also rose as central bank actions dominated the markets during the month, with the CBOE VIX Index rising from 19.2 to 20.97 amid this atmosphere of uncertainty. Some of the popular macroeconomic trends came to an end as oil began to consolidate after its sharp falls of 2014, while US equities sported their biggest loss since January 2014, underperforming global markets significantly. However, divergent central bank policies and US economic strength continued to drive the dollar’s appreciation, while sovereign bond yields fell further in the face of deflationary forces and easing monetary policy. As anticipated, an anti-austerity government was elected in Greece but no consensus was reached on how it would resolve its debt situation. More unexpected was the Swiss National Bank’s abrupt uncoupling of the franc from the euro, combined with the announcement of more quantitative easing by the European Central Bank, which sparked off another major sell-off in the euro.
Figure 1: December 2014 and January 2015 returns across regions
Asia ex-Japan managers were the best performers during the month, returning 1.65%. Indian equities were a major winning theme during the month as the BSE Sensex Index rose 6.32%, lifted by investor optimism over an unexpected interest rate cut by the Reserve Bank of India. European funds were also up 0.86% as equities in the region rallied sharply after the European Central Bank surprised participants with the size of its asset purchase program which was set at 60 billion euros a month. Funds focused on North America gained 0.22%, significantly outperforming the S&P500 Index which shed 3.10% in January while on the other hand Japanese funds slipped 0.83% during the same period. Managers investing with a Latin American mandate were the worst performers, losing 1.60% in the first month of the year, negatively impacted by the broad sell-off in commodities and local currencies as the MSCI Latin America Index3 dropped 5.15%.
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1 Based on 41.20% of funds which have reported January 2015 returns as at 12 February 2015
2MSCI AC World Index (Local)
3MSCI EM Latin America Index IMI (Local)