Hedge funds outperformed underlying markets in April and were up 0.88% during the month while underlying markets as represented by the MSCI World Index gained 0.67%. Emerging market managers continued to perform well during the month supported by resilient oil and commodity prices which helped to inject some investor optimism. A confluence of factors has helped oil gain some support despite ineffective talks between OPEC members while rather encouraging Chinese macro data and stimulus measures have also aided in providing a better outlook for the Chinese economy, resulting in the climb in prices across the commodity space.
However, subsequent improvements in US GDP figures, an uptick in the US dollar (which has depreciated against most developed and emerging market currency pairs), and oversupply in the oil market vis a vis build up in US inventories and the Iran factor could potentially upset the delicate balance that has materialised over the past few months in the markets. Moreover, were oil prices to retain their recent gains, or continue their recovery, inflation expectations in the US economy could trend upwards thus making a stronger case for an earlier than expected rate hike. However, barring any formal agreement between OPEC and non-OPEC members, oil could yet again drive the markets lower. Either way, the recent market calm may not be as durable as it looks, holding possible opportunities for long volatility and equity short-bias strategies in particular.
Figure 1: April 2016 and March 2016 returns across regions
Latin American managers led the performance of hedge funds in April, topping the tables with gains of 3.93% as resilient oil and commodity prices supported equity markets in the region. This was followed by North American and Asia ex-Japan hedge funds with gains of 1.25% and 0.92% respectively. European managers were also up in April, gaining a modest 0.26%. On the other hand, Japan dedicated hedge funds were the only regional mandate in the red in April, down 0.80%.
On a year-to-date basis, Latin American managers have led the table, gaining 9.61% - their best year-to-date returns over the past 10 years. Despite a tough start to the year, North American managers have made some recovery and are up 0.82% on a year-to-date basis. On the other hand, Japanese, European and Asia ex-Japan managers are in the red down 3.60%, 2.11% and 1.93% respectively over the same period.
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