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Trade Finance Hedge Fund: An alternative asset class amidst the rising yields environment

Trade finance hedge funds have gained traction over the recent years, driven by investor demand for alternative asset classes with low volatility and consistent return, as well as low correlation against the broader financial market. The sector began its rapid growth following the global financial crisis in 2008, when banks started reducing their trade finance exposure to meet Basel III capital requirements. To address the lack of a standard benchmark for this niche hedge fund strategy, Eurekahedge launched the industry’s first trade finance hedge fund index in 2018, providing institutional investors with a benchmark index representing the performance of trade finance hedge fund managers.

The Eurekahedge Trade Finance Hedge Fund Index is an equal-weighted index comprising 40 active funds focusing on trade finance strategies and is the first benchmark index designed to help institutional investors track the performance of the sector. The index returned 4.80% and 1.11% in 2019 and 2020 respectively. Trade finance funds returned 3.31% in 2021 and were up 1.06% over the first two months of 2022, maintaining their positive annual performance since the index’s inception despite the economic crisis created by the COVID-19 outbreak.

Figure 1 below compares the performance of the Eurekahedge Trade Finance Hedge Fund Index against fixed income hedge fund managers, as well as the global investment grade bond and the US high-yield bond markets represented by the Bloomberg Barclays Global-Aggregate TR Index and the Merrill Lynch US High Yield Master II Index respectively.

Table 1: Performance of trade finance hedge funds against comparable benchmarks since the end of 2009

Figure 1a: Summary monthly asset flow data since January 2013

Source: Eurekahedge

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