Hedge funds extend five-month surge

Hedge funds continued their surge in August, supported by the robust performance of global equity markets helped by encouraging news about the development of a COVID-19 vaccine and improving macroeconomic data.

The Eurekahedge Hedge Fund Index was up 1.79% in August, bringing its year-to-date return to 3.74% and its five-month trailing return to 12.79% since the end of March. This marks the largest five-month gain since July 2009, hedge fund data provider Eurekahedge reported.

Returns were positive across regional investment mandates in August with fund managers focussing on Asia ex-Japan up 3.03%, outperforming their North American and European peers who were up 2.45% and 1.97%, respectively. Across strategies, event-driven, long/short equities and relative value fund managers were up 3.00%, 2.85% and 2.32% respectively, throughout the month.

About 71.8% of the underlying constituents of the Eurekahedge Hedge Fund Index posted positive returns in August, and 21.8% of the hedge fund managers in the database were able to maintain double-digit returns over the first eight months of 2020.

In the US, hedge funds extended their recent performance surge in August, navigating a complex and volatile environment driven by the ongoing global pandemic, violent social unrest and protests across US cities, and evolving uncertainty around the upcoming US election.

The HFRI Fund Weighted Composite Index (FWC), reported by hedge fund data provider Hedge Fund Research, gained 2.7% in August. That gain extends the five-month return for the HFRI FWC to 15.4%, the strongest since the five months ending February 2000. It also brings the index value to an all-time high of 15,093.

Equity hedge strategies led industry-wide gains, as Quant strategies, large-cap technology and specialised energy exposures dominated broad-based sub-strategy gains.

“Hedge funds extended the historic performance surge in August despite ongoing virus and political uncertainty, posting the strongest five-month total return since early 2000 and the third-strongest five-month recovery return from a drawdown trough since its inception in 1990,” said Kenneth J. Heinz, president of HFR.

“While recent realised gains have been compelling, the continued dynamic market environment continues to comprise a rich forward-opportunity set for long short investing, with additional opportunities evolving in highly valued technology names, commodity and crypto currency exposures, as well as improving CMBS and other mortgage spread positions.”

Heinz added that it is likely that institutional investors will continue to increase allocations to hedge funds and other alternative assets as ideal portfolio exposures for opportunistically navigating current and future market uncertainty.

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