Introduction
The Eurekahedge Hedge Fund Index was up 5.80% year-to-date, trailing the underlying equity market as represented by the MSCI ACWI IMI which was up 14.44% over the same period.The trade optimism resulting from the trade truce between the US and China, combined with the complete shift of the Federal Reserve’s stance on rates supported global equities over the first four months of the year. However, the trade negotiation between the world’s two largest economies collapsed in May, and the Trump administration increased tariffs on US$200 billion of Chinese imported goods, prompting the Chinese government to do the same. Over the same month, the US blacklisted the Chinese telecom giant Huawei over national security threat concerns and triggered a global equity sell-off which pushed the Eurekahedge Hedge Fund Index into the red for the first time this year. The MSCI ACWI IMI lost 6.12% in May, while the S&P 500 and Shanghai Composite were down 6.58% and 5.84% respectively over the month. Despite the losses they suffered in May, hedge fund managers still recorded their strongest 1H performance since the global financial crisis in 2008.
Meanwhile, the US 10-year bond yield dipped to a level not seen since November 2016 on the back of the Fed’s dovish stance following their fourth hike in 2018. The escalation of international trade conflicts, global economic slowdown concerns and muted inflation ultimately pushed the Fed to cut their benchmark rate in July. Over in Europe, the weak economic growth of European countries, particularly Germany urged the European Central Bank to further ease their monetary policy by reconsidering a rate cut and another Quantitative Easing in near future. The dovish stance of the ECB dragged the German 10-year bond yield to a record low.
Figure 1: Global hedge fund industry map
The industry’s total assets under management (AUM) increased by US$2.0 billion over the first half of 2019, with performance-driven gains barely offsetting consecutive months of investor redemptions. Despite the muted interest level among hedge fund investors, net outflows have slowed down over the first half of the year, with US$46.4 billion and US$23.8 billion of redemptions recorded over the first and second quarters respectively, compared to the US$94.7 billion of net outflows seen in the final quarter of 2018.
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