Hedge funds bounced into positive territory in February despite volatile market conditions – up 0.36%1 during the month, outperforming underlying markets as the MSCI World Index2 declined 1.43% over the same period. The global risk-on mode continued into February as investors fled to safety with yields on sovereign bonds particularly the Bund, ending lower as investors anticipate Draghi’s stimulus shots in the ECB’s coming March meeting. Over in Asia, much of the equity market weakness were lead by the Japanese markets as dovish comments from Janet Yellen sent the yen appreciating mid-month. The Nikkei 225 and Tokyo Topix indices ended the month down 8.51% and 9.37% respectively. Meanwhile, oil prices found some brief support in mid-February with the Saudi-Russia talks on production freeze, but prices saw extreme swings when talks proved to be ineffective. As a result, trading conditions for commodity currencies were also somewhat choppy particularly for the Australian dollar against the greenback.
Across regional mandates, Latin American managers posted the best gains for February, up 2.14% as the climb in commodity and oil prices lent support for managers. The IBOVESPA was up in February ending the month with gains of 5.91% - prospects of political change in Brazil and fresh stimulus from China during the month signalling potential Chinese demand for commodities were among the confluence of factors supporting the performance of Latin American equity markets. North American managers also ended the month on a positive note with gains of 0.74%. On the other hand, Japanese managers posted the steepest decline down 3.83% in February while Asia ex-Japan managers lost 1.78% over the same period. Across strategic mandates, CTA/managed futures managers led the table with gains of 2.62%, supported by exposure into gold and sovereign bonds. Macro managers came in second with gains of 0.55% followed by arbitrage and event driven mandated hedge funds with gains of 0.42% and 0.13% respectively.
Further stimulus measures by central bankers worldwide are expected in what seems to be a global deflationary environment and while indications of an oil production freeze provided some brief support for oil prices during the month, talks were ineffective as OPEC members remain largely unwilling for the plan to fall through.
Figure 1: February 2016 and January 2016 returns across regions
The performance of regional mandates was mixed this month led by Latin American focused hedge funds with gains of 2.14% as the brief climb in oil and commodity prices provided some support for Latin American managers with the IBOVESPA gaining 5.91% in February. North American hedge funds also posted gains of 0.74%. On the other hand, Japanese managers witnessed the steepest decline – plunging 3.83%, followed by Asia ex-Japan and European managers with losses of 1.78% and 0.66% respectively. On a year-to-date basis, Latin American hedge funds were the only regional mandate to post positive returns of 1.90% during the month while other regional mandates languished. Asia ex-Japan managers posted the steepest year-to-date loss - down 6.84% followed by Japanese managers posting losses of 5.99% over the same period.
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