Hedge funds extended their gains for the year and were up 0.88%1 during the month of July based on preliminary numbers. Meanwhile, underlying markets, as represented by the MSCI AC World Index (Local), were up 1.64% over the same period. Returns were largely positive across the board with all key regional mandates in the green as emerging market mandates (excluding Eastern Europe & Russia) delivering the best returns. The US economy continues to march along at a steady pace, with a weakening USD and the gain in oil prices spurring inflation expectations and making a stronger case for a Fed rate hike later this year. However, the political deadlock in Congress; where President Trump still appears to have his hands tied to push through with his reform agenda (the recent sanctions against Russia which Trump approved quite begrudgingly being a recent case in point); as well as the upcoming fiscal debt ceiling are likely to force the Fed to pursue its rate hike more cautiously in the second half of 2017. Over in Europe, the growth momentum appears to be going strong with a strengthening Euro adding to gains for foreign investors in the region. Emerging markets (EM) led by India, China and Brazil have also contributed to strong gains for hedge fund managers as global risk appetite remains strong with a weakening USD favouring exposure to EM markets where valuations remain relatively cheap.
Figure 1: July 2017 and June 2017 returns across regions
All regional mandates were up in July with Latin American managers a clear lead among peers, up 3.68%, followed by Asia ex-Japan managers who were up 2.45% over the same period - their seventh consecutive month of gains. Japanese managers were up 0.76%, followed by North American and European managers who posted gains of 0.72% and 0.15% respectively. On a year-to-date basis, Asia ex-Japan managers led the tables once again, up 12.57% followed by Latin American and Japanese managers, with 10.49% and 5.71% respectively. European and North American managers also posted positive returns with gained of 4.08% and 3.41% respectively year-to-date.
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