Emerging markets drive hedge fund gains in April

Hedge funds continued to produce positive returns for the fourth consecutive month of the year. The Eurekahedge Hedge Fund Index was up 0.99 percent in April, trailing equities such as its benchmark MSCI World Index which gained 1.25 percent during the month.

Buoyed by emerging market-focused funds, which gained 4.06 percent in April, hedge funds overall have returned 3.42 percent for the year.

Eastern Europe and Russia focused hedge funds posted the strongest returns during the month, with the Eurekahedge Eastern Europe & Russia Hedge Fund Index up 9.09 percent on the back of a recovery in the Russian equity markets due to rising oil prices and a strengthening ruble.

A Eurekahedge report with data for April showed that Asian managers, excluding Japan, returned 8.62 percent during the month and 13.41 percent year-to-date. Greater China mandates showed strong gains of 15.55 percent as the underlying CSI 300 equity index, lifted by the Shanghai-Hong Kong stock-connect, rose 17.85 percent.

Data provider Eurekahedge noted that “despite weaker macroeconomic data, the expectation remains strong that [the People’s Bank of China] will bring down rates to meet its 7 percent GDP growth target, the first installment of which happened earlier this month.”

Japanese hedge funds, meanwhile, also posted relatively strong gains of 1.89 percent as the weaker yen continued to equities.

Latin American managers were up 1.82 percent.

European managers returned 0.69 percent and outperformed the underlying markets such as the MSCI Europe, which gained 0.25 percent during the month. North American managers, in turn, posted the lowest returns, up only 0.25 percent. European funds increased their asset base by US$10.5 billion, bringing their current AUM close to a record high of US$500 billion.

Hedge funds continue to attract additional investments with net capital inflows to the industry since February, reaching US$30 billion. North American managers lead in terms of net investor inflows, recording US$10.8 billion in new allocations, approximately one-third of the level seen for the same period last year.

Long/short equity strategies lead with returns of 2.4 percent, bringing the year-to-date returns to 5.66 percent, the highest among all strategic mandates.

Macro and CTA/managed futures funds were the worst performers during the month, down 0.61 percent and 1.38 percent, respectively.

Managers reported losses from their positions in FX, commodity and bond futures. More specifically, the U.S. dollar decline of 4.15 percent against the euro contributed to losses for systematic trading strategies. Short exposures to energy futures were hit by rising oil prices following a cut in production capacity. Sharp movements in German and Japanese bond yields also impacted performance.

“It seems that the perceived delay in the U.S. interest rate hike [from June to possibly September] has upset some of the key convictions of macro and CTA/managed futures funds which left them on the wrong side of the markets in April,” Eurekahedge said.