Positive returns but hedge funds trail equity markets

Hedge funds posted positive returns in April for the sixth straight month but the average US hedge fund performance lagged behind the US equity markets.  

“The typical hedge fund generated a [year-to-date] return of 5 per cent through May 10, compared with 15 per cent gains for both the S&P 500 and the average large-cap core mutual fund,” wrote Amanda Schneider, Goldman Sachs, in the investment bank’s latest Hedge Fund Trend Monitor. “Hedge funds returned an average of 3.5 per cent in 1Q 2013, lagging the S&P 500 by 700 bp. Last year the average fund returned 8 per cent vs. 16 per cent for the S&P 500.” 

Goldman Sachs’s Hedge Fund Trend Monitor, tracks 705 funds with a combined $1.5 trillion in equity assets. Hedge funds performance for 2013 lagged also behind mutual funds, which were up 14.8 per cent, Goldman Sachs noted. 

The report highlighted that the major long investments of hedge funds were indeed successful. The list of the top 50 stocks, picked by hedge funds to rise in value, grew by more than 17 per cent in 2013. 

However, many funds got their short positions, their bets that the price of a particular stock would fall, plain wrong. A list of important short positions showed that only four out of 50 stocks lost value as expected and 31 actually beat the S&P average. 

The Natixis April report on hedge funds confirmed that all hedge fund strategies underperformed and trailed the market. All hedge fund strategies, except short funds, were up in April. Short funds have lost 12 per cent in 2013. 

Directional strategies relied on their traditionally defensive positions to top the ranking in April. CTAs benefitted both from corrections in the commodity market and bullish equity markets. 

Global macro rose 1.8 per cent mainly based in their long exposure to US Treasuries. 

Globally, with the exception of Europe, all major hedge fund investment mandates delivered positive returns in April. The Eurekahedge Hedge Fund Index was up 0.87 per cent during the month as most markets trended upwards. The MSCI World Index gained 2.02 per cent in April.  

Japanese managers posted the strongest returns for yet another month. The Eurekahedge Japan Hedge Fund Index was up 6.63 per cent in April, bringing its year-to-date return to 18.55 per cent and extending its winning run to the eighth month making it the longest winning streak on record for Japanese funds.  

The Nikkei 255 increased 11.8 per cent during the month as the change in monetary policies by the Japanese government continued to yield dividends for the market.  

 

Asset growth 

Although hedge funds have been underperforming the S&P since the financial crisis, this has not stopped investors from pouring funds into the asset class. According to Hedge Fund Research, industry assets surged by $122 billion to a record $2.375 trillion in the first quarter of this year.  

It was the largest increase in assets under management since the fourth quarter 2010. New capital accounted for $15.2 billion in the first three months of the year, Hedge Fund Research said. Hedge funds have now experienced capital inflows in 14 of the last 15 quarters. 

Data provider eVestment, however, saw only $5.8 billion net inflows in the industry through the first four months of 2013, the slowest growth rate at the beginning of any year since the firm started to gather data 10 years ago. 

Goldman-Sachs

Goldman-Sachs
Photo: AP
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