The Eurekahedge Hedge Fund Index declined -0.561 in May, trailing behind the S&P 500 which ended the month roughly flat with a gain of 0.01%. The persistence of high inflation, hawkish monetary policy and the Russia-Ukraine conflict continued to dampen investor sentiment over the month. The US consumer price index showed a year-over-year increase of 8.6% in May, faster than April’s year-over-year surge of 8.3% which led to anticipation that the Federal Reserve would be forced to take even more aggressive action to rein in the rising inflationary pressure across the economy. Following the 50bps interest rate hike announced in early May, the Federal Reserve has announced a further 75bps hike on June 15, the biggest increase since 1994 with a potential for a further 75 or 50 bps move at the next policy meeting in July. Over in Europe, returns were mixed among equity benchmarks in the region with the RTS Index up 11.71% while the Euro Stoxx 50 and CAC 40 Index were down -0.36% and -0.99% respectively. The high prices for commodities, which is Russia’s key source of revenue combined with the imposition of capital controls has enabled the Russian rouble to appreciate by a further 14.29% against the US dollar in May, supporting the performance of the RTS Index. Meanwhile, Eurozone inflation surged to a record high of 8.1% in May from 7.4% in April, more than four times the European Central Bank’s 2% target. Concerned by this price surge, the European Central Bank has announced that it would end quantitative easing on July 1 and hike interest rates by 25 bps on July 21, followed by a potentially larger 50 bps increase in September. If the 50 bps hike materialise, it would be the ECB’s largest one-off rate increase since June 2000. Returns were mostly negative across geographic mandates in May, with the Latin American mandate the only exception; returning 1.40% while the Asia ex-Japan mandate fared the worst with a return of -0.97%. Across strategies, the macro mandate performed the best with a gain of 0.11% while the event driven mandate trailed behind their peers with a return of -1.77%.
Roughly 39.8% of the underlying constituents of the Eurekahedge Hedge Fund Index posted positive returns in May, and 85.4% of the hedge fund managers in the database were able to outperform the S&P 500 over the first five months of the year.
Figure 1: May 2022 and April 2022 returns across regions
Figure 2 illustrates the 2022 performance of hedge fund managers across regions. As of May year-to-date, most of the geographic mandates have recorded negative returns with Latin America the only exception. Global hedge funds dipped further into the red with a May 2022 year-to-date return of -2.66% after the Federal Reserve’s aggressive moves to tighten monetary policy prompted concerns of growth slowdowns and the prospect of a recession. Latin American hedge funds continue to remain the best performer among their regional peers with a May 2022 year-to-date return of 4.67%. At the other end of the spectrum, Asia ex-Japan hedge funds lagged the group with a return of -8.73% as China continues facing difficulty sustaining its zero Covid model amid the emergence of new variants.
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