Hedge funds declined 0.35%1 during the month of October – their first monthly loss after seven straight months of gains. Despite being in the red this month, hedge funds have outperformed underlying markets, with the MSCI AC World Index (Local) down 1.38% in October. On a year-to-date basis, hedge funds were up 2.98% with roughly 20% of managers posting double digit returns compared with 15% over the same period last year.
While the US Presidential Elections loomed in the background, markets moved in the rhythm of a series of economic data releases as well as central bank meetings this month. The rate hike action from the Federal Reserve seems quite likely as strong US macro data and a hawkish Fed set the stage for tapering in December though the outcome of the Presidential Elections is yet to be seen. Meanwhile global bond markets saw a sell off on the back of strong economic data from the US, UK as well as concerns over a potential end to the ECB's QE program early next year. The concern remains that with a bottoming out in commodity prices and improving real data, inflation might materialise at a pace not anticipated by major central banks.
Below are the key highlights for the month of October 2016:
Hedge funds ended their 7-month winning streak and were down 0.35% in October. On a year-to-date basis, hedge funds are up 2.98% and have surpassed their annual gains of 1.65% posted in 2015. Global funds of hedge funds are down 1.01% for the year while long only absolute return strategies are up 8.07%. The MSCI World AC (Local) Index is up 1.94% for the year.
Emerging market mandates lead the gains in 2016 up 10.18% – Latin American, Eastern Europe & Russia and India mandated hedge funds are up 22.36%, 14.17% and 13.01% respectively.
Among developed mandates, Japan hedge fund managers were up 1.52% while North American and European managers were down 0.47% and 0.30% respectively. On a year-to-date basis, North American hedge fund managers were up 4.81% while their European and Japanese counterparts were in the red, losing 0.60% and 1.66% respectively.
Distressed debt hedge funds posted the best returns in October and on a year-to-date basis, gaining 2.27% and 10.99% respectively. The US$56.6 billion distressed debt hedge funds sector has grown its asset base by almost US$2.0 billion since March 2016.
The Eurekahedge CTA/Managed Futures Hedge Fund Index posted the steepest decline among strategic mandates in October and was down 2.11%, with underlying trend following strategies declining 3.71% while commodity focused hedge funds lost 1.19%.
Asia ex-Japan hedge fund managers were up 0.51% during the month, with underlying India mandated hedge funds gaining 4.60% while Greater China focused hedge funds declined 1.00% over the same period.