News & Events

Eastern Europe and Russia hedge funds outshine peers in 2022 despite increasingly challenging market environment

The Eurekahedge Eastern Europe & Russia Hedge Fund Index was down 24.09% as of February 2022, outperforming the underlying equity market in the region as represented by the STOXX Eastern Europe 50 by 6.12%. In 2021, Eastern Europe & Russian hedge funds were up 8.90%, outperforming their broader emerging market peers as represented by the Eurekahedge Emerging Markets Hedge Fund Index who returned 2.28% over the same period. Prior to November 2021, Eastern Europe & Russian hedge funds had posted 12 consecutive months of positive returns - their longest winning streak since the index’s inception. However, equity markets in the region, particularly in Russia recorded double-digit losses of 10.74% in November 2021, driven by a combination of the emergence of the highly infectious Omicron variant of COVID-19 and concerns over a potential war between Russia and Ukraine as satellite images captured a build-up of Russian troops on the border with Ukraine. Eastern Europe & Russian hedge funds were negatively impacted as a result and declined 6.11%. Moving into 2022, Russia invaded Ukraine due to national security concerns as the latter was seeking membership in the military alliance of the North Atlantic Treaty Organization (NATO). In response to Russia’s invasion of their former ally in the Union of Soviet Socialist Republics (USSR), leading countries and organizations condemned the barbaric act of Russia by imposing extraordinary sanctions on Russia such as freezing their central bank’s assets abroad and banning new investment in the region. Hundreds of foreign companies also withdrew their operations in Russia as a protest to the latter’s declaration of war against Ukraine. Over the first two months of the year, the RTS Stock Index and STOXX Eastern Europe 50 were down by 41.29% and 30.21% respectively.

Figure 1: Performance of Eastern Europe and Russian hedge funds against comparable benchmarks since end-2010

Figure 1 above compares the performance of the Eurekahedge Eastern Europe and Russia Hedge Fund Index against the underlying equity market and their exchange-traded funds counterpart as represented by the Stoxx Eastern Europe 50 and VanEck Russia ETF Total Return. In addition, we also examine the performance of the S&P GSCI Energy Total Return owing to the strong correlation of Russian equities to the performance of the oil market. Since end-2010, Eastern Europe and Russian hedge funds were trading under water until September 2021, but failed to sustain their rally owing to the ongoing geopolitical crisis in the region. For the month ending December 2021 or during the pre-invasion, hedge fund managers posted -0.26% of return per annum, while VanEck Russia ETF Total Return fund posted an annualised return of 0.50% over the same time horizon. In comparison, Stoxx Eastern Europe 50 returned -2.16% per annum. Moving into the month ending February 2022, the annualised return of Eastern Europe & Russian hedge funds since 2011 fell to -2.69%, compared to -5.23% of Stoxx Eastern Europe 50.

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