Hedge funds continued their uptrend and gained 0.73%1 in August, outperforming underlying markets as represented by the MSCI AC World Index (Local) which gained 0.15% during the month. Almost all hedge fund strategies ended the month in the green, with CTA/managed futures up 1.24% and macro hedge funds up 1.04% delivering the strongest gains. Across regional mandates, emerging markets focused hedge funds continued to post strong gains relative to their developed market peers contributed in part by the depreciating US dollar which is down almost 9.34%2 year-to-date.
August was dominated by geopolitical tensions on the Korean peninsula as the risk of a nuclear showdown between the North and the US led allies became more palpable. The event overshadowed US job gains posted earlier during the month, leading to a short-lived spike in volatility and sell off in equities. The Japanese yen, despite being on the frontline of North Korean aggression, maintained its safe-haven status, and along with the Chinese renminbi posted gains against the US dollar. Fixed income markets saw declining yields in the flight for safe haven assets, with defensive comments from the central bank meeting at the Jackson Hole symposium doing little to lift market expectations. While the Korean crisis appears to be on track towards a calculated de-escalation, the Fed’s balance sheet deleveraging will remain a more cumbersome undertaking and is likely be the main challenge to the market calm and appetite for risk as we head into the year end.
All regional mandates ended the month of August in the green, with Latin American mandated hedge funds posting the strongest gains, up 3.26% during the month as emerging markets continued their strong run in 2017. Asia ex-Japan and Europe managers were also up with gains of 1.50% and 0.44% respectively. Japanese managers were up 0.30%, followed by North American managers who posted the weakest gains in August, up 0.04%. On a year-to-date basis, Asia ex-Japan managers outshone regional peers, and were up 14.02% followed by Latin American peers who posted gains of 12.86% over the same period. Japanese, European and North American managers are also in positive territory as of August 2017 year-to-date, with gains of 6.28%, 4.83% and 3.30% respectively.
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