Research

Hedge Fund Performance Commentary

Introduction

Hedge funds were up 1.28%1 during the month of October, with 2017 year-to-date returns coming in at 6.99%. Meanwhile, underlying markets as represented by the MSCI AC World Index (Local) gained 2.56% in October with its 2017 year-to-date returns at 14.84%. Roughly 77% of the underlying constituent hedge funds for the Eurekahedge Hedge Fund Index were in positive territory this month thanks to a broad-based rally in global equity markets and an improving investor risk appetite. Asia ex-Japan managers led the performance among regional mandates this month, up 2.82%, while CTA/managed futures managers topped the table across strategies gaining 2.66% over the same period.

The trading scene in October was affected by a series of macro data, central bank announcements, OPEC and to a lesser extent the passage of Trump’s tax reform and choice of next Fed chair. Geopolitical tensions surrounding Iraq and expectation of an extensive OPEC production cuts led to some support for oil prices. Investor optimism remained buoyed as the Trump administration’s proposed tax reforms made some progress in the Senate. While lacklustre inflation data remains a concern for a possible rate hike in December, strong macroeconomic data in US could put the central bank on track for its next rate hike. However, given the impact of the hurricane seasons on US economy this year, macroeconomic data could likely surprise on the downside, in which case it will be interesting to see if the Fed can follow up on its resolve to normalize rates. In the Eurozone and elsewhere in the world, economic data for Q3 2017 was largely encouraging with indicators pointing towards global economic expansion.  ECB's announcement to scale back its asset purchase program starting January next year weighed on the currency, with euro slid against dollar as market anticipated  a more hawkish stance regarding further easing in the Eurozone. Over in Japan, Abe’s expected election victory pushed Japanese stocks to all-time high with Nikkei 225 rallying sharply on expectations of continuity in Abe’s economic and monetary policies.

Figure 1: September 2017 and August 2017 returns across regions
 

 

All regional mandates ended the month of September in the green, with Japan mandated hedge funds posting the strongest gains, up 1.71% during the month and 8.83% year-to-date. Asia ex-Japan hedge funds were up 1.25% during the month, with Greater China mandates up 2.15% while India dedicated hedge funds were down 0.76% with the INR posting a steep decline against the US dollar during the month. Latin America focused hedge funds also posted strong gains with 1.15% followed North American and Europe mandated hedge fund which were up 1.08% and 0.84% respectively, with gains from equity hedged strategies being depressed by losses emanating from managed futures and FX trend following strategies.

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Footnote

1Based on 61.95% of funds which have reported October 2017 returns as at 16 November 2017
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