Hedge funds were up 0.40% in May1 while underlying markets, as represented by the MSCI World Index2 gained 1.28% over the same period. Managers held their ground despite tight markets in May with mid-month reversals across commodities, and weaker equity performance in developing markets affecting the trading scene. Risk appetite somewhat sustained during the month with oil prices remaining resilient going into May. Distressed debt hedge funds were a clear lead among strategic mandates, up 1.66% while North American managers led regional mandates, up 1.03%. Among profitable moves for managers were long developed markets consumer stocks, some into European consumer and information technology names. Managers also gained on long Chinese tech names on the back of positive business announcements from specific stocks even though much of East Asia’s equity market weakness was led by the sell-off in Chinese markets. On the FX front, long USD positions on the back of relative dollar strength contributed to gains. Meanwhile, fluctuations on the GBP/USD currency pair caused by the ongoing 'Brexit' debate resulted in difficult trading ranges for some managers.
Figure 1: May 2016 and April 2016 returns across regions
All regional mandates were up for the month of May with North American managers leading the tables with gains of 1.03%. This is followed by European and Japanese managers who were up 1.00% each. Resilient oil prices partly helped the performance of developed market equities during the month, with the DAX and Nikkei Indices ending May up 2.23% and 3.41% respectively. Japanese equity markets were the best performers in East Asia while Chinese equity markets witnessed some sell-off during the month. Asia ex-Japan managers gained 0.23% while Latin American managers increased by a marginal 0.03% over the same period. On a year-to-date basis, gains made in early-2016 led Latin American managers to the top of the table, up 8.93%, followed by North American managers who were up 1.94%. On the other hand, Japanese, Asia ex-Japan and European managers were down 2.96%, 2.11% and 1.25% respectively over the same period.
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