Hedge funds outperform global markets in August

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Turbulent conditions and declining equity markets brought with them another month of negative returns for hedge funds in September. The Eurekahedge Hedge Fund Index was down 2.30%1 for the month, though it should be noted that the MSCI World Index fell nearly 10%2 during the same period. More than one-third of all the hedge funds that have reported to the Eurekahedge database for September were in positive territory for the month.

Key highlights for September:

- Hedge funds outperformed global markets by nearly 7.7%3 in September

- Early reports indicate negative net flows to hedge funds for the first time since November 2010

- CTA/managed futures funds witness 12th consecutive month of net positive asset flow

Regional Indices

All regional mandates finished the month in negative territory as the heightened volatility, negative sentiment surrounding Greece’s sovereign debt problem and prevailing fears of another global recession, made it a difficult and unpredictable trading environment. The markets lacked clarity throughout the month in regards to the Greek situation, keeping investors away.

The US Federal Reserve’s announcement of ‘Operation Twist’, on 21st September, did little to sooth investor concerns, and global markets continued to decline further near the month end. North American and European managers were able to provide significant downside protection amid steep declines in the markets, losing 2.10% and 1.99% respectively. The S&P500 declined 7.18% during the month while the MSCI Europe Index was down 11.75%.

Japanese hedge funds witnessed the smallest losses in September, down 0.57%, while the Nikkei lost 2.85%. The Japanese market remained sensitive to global developments during the course of the month and the Nikkei dropped to its lowest point in two and a half years on September 26th, before rebounding on better news from Europe at the month end. Hedge fund managers remained guarded during the month and winning strategies were net-short market positions as well as value investments in the food sector. Managers using options and futures also reported some gains.

Strategy Indices

Following a similar pattern to the one seen in August, most strategies were loss-making in September with the exception of CTA/managed futures funds, which were flat to slightly positive. The Eurekahedge CTA/Managed Futures Hedge Fund Index was up 0.13%4 during the month, with short-term systematic traders leading the gains. Managers trading currencies, options and futures posted the highest profits while returns from commodity investing hedge funds were mixed. Long/short equity and distressed debt hedge funds witnessed the largest losses, down 4.57% and 4.62% respectively, as risk appetite remained low for most of the month. Early reports also suggest that long/short equity managers witnessed the heaviest redemptions during the month.

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