Hedge funds were up 0.41%1 during the month of November, with 2016 year-to-date returns coming in at 3.53%. Meanwhile, underlying markets as represented by the MSCI AC World Index (Local) gained 2.88% in November with its 2016 year-to-date returns at 4.88%. Roughly 56% of underlying constituent funds for the Eurekahedge Hedge Fund Index were in positive territory this month, with majority of them being long/short equities mandated. North American hedge fund managers posted the best returns among regional peers this month, with gains of 2.28% while among strategic mandates, event driven hedge funds led the tables with gains of 1.85%.
We believe that 2017 will hold more volatility in store for the markets. While the Trump driven reflation theme could be a positive driver for the US economy, it is too early to discount the damage to the US and world economy from his protectionist trade views. Further a strengthening USD will act as another check on the recovery within the US economy and it is very likely that the Fed might be able to slot only one rate hike in 2017 once the euphoria around ‘Trumponomics’ is grounded. The Eurozone will be another source of anxiety for the markets, where a fledgling economic recovery, a possibly (relatively) painless recovery for the UK post-Brexit and the social tensions arising from immigration would embolden and tilt the odds in favour of Euro-sceptics. Across emerging markets, uncertainty arising from Trump’s anti-trade rhetoric coupled with the capital outflows could impact growth. The question remains – while Trump moves to America first, will the US Fed follow suit or continue to act as the world’s central bank?
Figure 1: November 2016 and October 2016 returns across regions
Performance across regional mandates was a mixed bag during the month, with North American managers leading the tables, gaining 2.28%, as manager performance was propped up by the strength of underlying equity markets post-Trump victory with the S&P 500 climbing 3.42% in November. Japanese hedge fund managers also posted positive performance with gains of 1.16% during the month. The USD regained its strength after the initial shock on an unexpected Trump victory as well as a hawkish Fed signalling a chance of a December rate hike. This lead to the weakening of the Yen and a stronger performance of Japanese equity markets with the Nikkei 225 Index gaining 5.07% during the month. On the other hand, Latin America, Asia ex-Japan and European hedge fund managers languished into negative territory this month, down 3.09%, 1.07% and 0.45% respectively.
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