New Dow Jones Credit Suisse Hedge Fund Index Commentary Offers Insight into July Hedge Fund Performance

The Dow Jones Credit Suisse Hedge Fund Index finished up 1.42% in July. A new monthly commentary offers insight into hedge fund performance through the month of July. Some key findings from the report include:



Hedge funds, as measured by the Dow Jones Credit Suisse Hedge Fund Index, finished July up 1.42%, with 8 out of 10 strategies in positive territory;

In total, the industry saw estimated outflows of approximately $8.5 billion in July, bringing overall assets under management for the industry to approximately $1.75 trillion;

The Equity Market Neutral and Fixed Income Arbitrage sectors experienced the largest asset inflows on a percentage basis for the second consecutive month, with inflows in July of 3.03% and 0.22% from June 2012 levels, respectively;

Managed Futures funds posted positive results in July, with the month almost a mirror image of June in which managers were able to recoup the previous months’ losses and rebuild positions according to stronger signals; and

Event Driven funds generated overall positive performance in July against the backdrop of European sovereign debt issues and growth concerns in developed economies. M&A activity experienced a slight uptick in newly announced transaction volume in July and credit strategies generated gains during the month as a result of supportive technical strength and improved risk sentiment.

Single-manager hedge funds continue to grow

Single-manager hedge funds, which include commodities trading advisors, withstood market swings, macroeconomic uncertainties and regulatory reforms in the first half of 2012, increasing their reported assets under management by 5.23% to $1.892 trillion, according to a study by PerTrac, the leading provider of analytics, reporting and communications software for investment professionals. This mid-year update to their annual study on the size and composition of the hedge fund industry also found a continued decline in the reported assets under management of funds of hedge funds. The amount of money invested in these investment vehicles, which allocate exclusively to hedge funds, declined by 4.92% during the first half of 2012 to $425 billion. Part of the slide in these funds’ assets can be attributed to the decline in the number of them reporting information to databases, which slipped by 3.81% to 3,259.

Despite the drop for funds of hedge funds, the total, reported amount invested within the hedge fund industry, including funds of hedge funds and single-manager hedge funds (of which, commodities trading advisors – or CTAs – are considered a subset in this study) climbed to $2.317 trillion in the first six months of the year. The total number of all funds reporting to databases also jumped by 4.61% to 14,013, led by single-manager hedge funds, whose ranks swelled 7.46% to 10,754 funds. Most of the gains in the number of single-manager hedge funds (75%) came from small and start-up funds with less than $25 million in assets under management.

These reported numbers suggest that asset allocators have a growing interest in alternative investments and an increasing tendency toward investing directly in hedge funds. The data also points to the resilience of hedge funds as the end of the first half of 2012 marks three and a half years of steady growth.

“Although challenging economic conditions have impacted hedge funds’ performance during the last few years, investors still see their long term value and are giving them a significant place in their portfolios,” said Brendan Dolan, President of PerTrac.

When investors allocated to alternatives in 2012, they favored the largest funds. The “billion dollar club” of single-manager hedge funds, those that oversee more than $1 billion, saw assets under management increase to $1.146 trillion from $1.08 trillion at the end of 2011. The billion-dollar-plus funds represented 60.6% of all assets invested with single-manager hedge funds at the end of the first half of 2012.

The PerTrac hedge fund study is unique because it is the only one that aggregates information from 11 leading global databases. This provides for the most holistic picture of the industry. Of those funds that report, 54% reported to only one database in 2011, according to the 9^th edition of the study. PerTrac’s proprietary analytics software also removes duplicative fund data for an added level of precision in analyzing the number of funds and assets under management.

The study also found, among reporting funds, that:

• The “billion dollar club” reigned supreme within funds of hedge funds as well. 48.7% of assets were controlled by the 3.24% of firms that each managed more than $1 billion.
• CTAs posted healthy gains in assets of 6.05% this year, bringing their total to $438 billion under management at the end of first half of 2012. The total number of CTA funds rose by 1.26% from the end of 2011 to 1,528.
• Forty-five CTAs reported managing in excess of $1 billion and they accounted for 78.1% of that sector’s assets under management.

For more information, please download the full PerTrac study by clicking here.

Greenwich Global Hedge Fund Index rose +0.93% for July

Hedge fund managers posted positive results in July 2012 on average as the Greenwich Global Hedge Fund Index rose +0.93% for the month. As indicated in our first estimates earlier this month, Futures strategies were one of the best performers in July, returning an average of +2.29%. The GGHFI’s gain of +0.93% closely follows that of global equity returns in the S&P 500 Total Return (1.39%), and MSCI World Equity (+1.20%) equity indices. 66% of constituent funds in the GGHFI ended the month with gains.

Global Index Strategy Highlights

• Futures funds are one of the best performers during the month, gaining +2.29% on average. Many managers benefitted from long positions in commodities markets, especially in agriculture. Macro managers also performed well in the month with a +1.52% gain.

• Global stock markets saw much of their gains concentrated in the last week of the month. On average, Long/Short Equity funds returned another month of modest gains (+0.19%), continuing to trail equity markets. Value strategies outperformed both Opportunistic and Growth strategies with a gain of +0.41%. Short-Biased funds were a bright spot in this group in July, rising +3.52%.

• Fixed Income Arbitrage funds were the best performers in the Market Neutral Group in July, returning +1.51%. This strategy is now up approximately 6.1% YTD, along with Convertible Arbitrage. These strategies now lag only Long-Short Credit funds for their 2012 performance (+6.14% YTD).

• Regionally, funds investing in Developed Markets (+0.99%) outperformed those investing in Emerging Markets (+0.20%) on average in July. Global Developed Markets funds had the best month (+1.60%). Perhaps surprisingly, this was followed in the Developed Markets category by Western European funds, which rose 0.95% in July. This brings them to +4.02% YTD, making this region the strongest YTD. Funds focused on Emerging Markets Europe also posted very strong results for the month, gaining +1.17% on average.

U.S. Fixed Income: Hedge Funds Expand Influence

Fixed-income trading volume generated by U.S. hedge funds increased more than 30% from Q2 2011 to Q2 2012, according to the results of Greenwich Associates 2012 North American Fixed-Income Study. That growth far surpassed the 20% increase in trading volumes among all institutions and a 14% pick-up in trading volumes among other types of funds and advisors. As a result, hedge funds increased their clout as a source of U.S. fixed-income activity.

In 2011 hedge funds generated 18% of overall fixed-income trading volume in the United States. In 2012 that share grew to 24%. "However, reflecting the broader trends in market trading flows, hedge fund trading volumes in investment-grade credit actually dropped roughly 60% during the period in our study - even as their overall fixed-income volume grew substantially," says Greenwich Associates consultant Tim Sangston. "Meanwhile, hedge fund government bond trading volumes more than doubled."

As a result of the sharp pick-up in hedge fund trading activity, these investors are expanding their presence within individual fixed-income products. In U.S. government bonds, for example, hedge funds in the year ending Q2 2011 generated just 13% of total U.S. trading volume. In the same period ending in Q2 2012, hedge funds accounted for almost a quarter (24%) of volume. In distressed debt and high-yield credit derivatives, hedge funds generated more than 70% of total trading volume in the year covered in the research

TrimTabs and BarclayHedge Report Hedge Funds Redeem $4.9 billion in June 2012

Hedge Fund Industry’s June Performance Lags S&P 500; Assets Down 29.5% Since 2008 Peak. Equity-Based Funds Are Notably Low Performers Over Past 12 Months

BarclayHedge and TrimTabs Investment Research reported today that the hedge fund industry redeemed $4.9 billion (0.3% of assets) in June, compared with inflows of $1.1 billion in May. Based on data from 3,012 funds, the TrimTabs/BarclayHedge Hedge Fund Flow Report estimated that industry assets were $1.71 trillion in June, down 1.3% from $1.73 trillion in May and down 29.5% from their peak of $2.4 trillion set in June 2008.

“The hedge fund industry can’t seem to get out of the doldrums,” said Sol Waksman, founder and president of BarclayHedge. “Industry performance continues to lag popular benchmarks such as the S&P 500, and asset growth has been flat for most of the past year.”

Industry outflows totaled $32.1 billion from July 2011 to June 2012, compared with inflows of $103 billion for the previous 12 months, according to the report, while industry assets have hovered below $1.75 trillion for the past nine months.

Hedge fund industry performance was up only 0.6% in June, substantially less than the S&P 500 Index, which rose 3.96%. “The industry outperformed the S&P 500 in April and May, but June’s numbers returned to the trend we’ve seen all year,” Waksman said. “For the first six months of 2012, the industry earned a 2.4% return while the S&P 500 rose 8.3%.”

Meanwhile, funds of hedge funds continued to underperform the industry at large. In June, funds of funds redeemed $8.7 billion (1.7% of assets), the 13th monthly outflow in the past 18 months, and posted a 0.5% loss, lagging the industry’s returns by 110 basis points.

Among the major hedge fund categories, Fixed Income funds had the strongest inflows and the top performance over the past year. “Fixed Income funds were a haven, reliably turning profits and attracting inflows as one crisis after another whip-sawed financial markets around the globe,” said Charles Biderman, founder and CEO of TrimTabs. Equity-based hedge funds did not fare so well, Biderman noted.

“Investors hoping to cash in on hedge fund managers’ stock-picking skills must be disappointed,” Biderman said, noting that out of 13 major hedge fund categories, no equity-related categories showed a profit in the past 12 months, and two of the four worst-performing categories were represented by stock funds, Equity Long Bias (-6.1%) and Equity Long Only (-7.4%).

Hedge funds based in the Eurozone experienced the largest inflows (3.0% of assets) in June among eight global regions tracked by TrimTabs and BarclayHedge, a turnaround from the dominant trend of the past year, “when investors dumped European funds en masse and poured billions into Japanese funds in the hope of capitalizing on shifts in the value of the yen,” said Leon Mirochnik, Vice President at TrimTabs. 

Meanwhile, the July 2012 TrimTabs/BarclayHedge Survey of Hedge Fund Managers found that fund managers were evenly divided between neutral and bearish on the S&P 500 for August. Conducted in late July, the survey of 78 hedge fund managers found that bullish sentiment on the S&P 500 dropped to an 11-month low while bearish sentiment jumped to its highest level in the past nine months.

The TrimTabs/BarclayHedge database tracks hedge fund flows on a monthly basis. The TrimTabs/BarclayHedge Hedge Fund Flow Report provides detailed analysis of these flows as well as relevant topical studies.  Click here for further information.

BarclayHedge is a leading hedge fund data vendor and one of the foremost sources for proprietary research in the field of alternative investments. From its origin as a research specialist and performance measurement firm, BarclayHedge has developed complete client services as a publisher, database and software provider, and industry consultant.

TrimTabs Investment Research is the only independent research service that publishes detailed daily coverage of U.S. stock market liquidity--including mutual fund flows and exchange-traded fund flows--as well as weekly withheld income and employment tax collections.  Founded by Charles Biderman, TrimTabs has provided institutional investors with trading strategies since 1990.  More information here.

HEDGE FUNDS ADVANCED +0.47% IN JULY, Remain Cautious; Lag Volatile Equity Markets

Hennessee Group LLC, an adviser to hedge fund investors, announced today that the Hennessee Hedge Fund Index increased +0.47% in July (+2.78% YTD), while the S&P 500 gained +1.26% (+9.68% YTD), the Dow Jones Industrial Average advanced +1.00% (+6.48% YTD), and the NASDAQ Composite Index increased +0.15% (+12.83%). Bonds were also up, as the Barclays Aggregate Bond Index increased +1.38% (+3.78% YTD) and the Barclays High Yield Credit Bond Index increased +1.90% (+9.30%).

“July was another choppy month for equity markets and risk assets in general. Financial market volatility continued in July due to slowing economic growth in the U.S. and China and concerns about the European sovereign debt and banking crisis. ‘Risk off’ assets performed well as yields on U.S. and German government bonds declined to record lows. ‘Risk on’ assets were also positive as global equity markets generally posted gains for the month,” commented Charles Gradante, Managing Principal of Hennessee Group. “Hedge funds were conservatively positioned as the European situation remained precarious, and underperformed other risk assets.”

“Managers report that shorting has been challenging. Many maintain low net exposure because they are cautious about overall market direction, but would like to have higher gross exposure,” commented Charles Gradante. “Managers state that it has been challenging to grow the short portfolio as many shorts have declined in value, which reduces short exposure. In addition, it has been difficult to find and size new ideas as the market declines. Some managers are utilizing ETFs, which detracted from performance in the sharp late month rally.”

Equity long/short managers were essentially flat in July, as the Hennessee Long/Short Equity Index advanced +0.05% (+2.63% YTD). Equity markets were volatile again punctuated by a late month “risk on” rally as money moved out of treasuries into equities, sparking a +2% rally in the broad averages. The best performing sectors were telecommunications (+5.48%), energy (+4.06%), and consumer staples (+2.61%). The worst performing sectors were materials (-1.33%), consumer discretionary (-0.34%) and financials (+0.03%). Hedge funds performed well during the first couple weeks of July when global equity markets declined amid concerns about Europe. However, hedge funds underperformed as markets rallied on the hope that the European debt problems would be fixed. Many managers were cautious about increasing exposures into the “risk on” move due to fears that relief rally would be brief and risk of getting whipsawed would be high. While July is typically a strong month for long/short equity managers due to second quarter earnings reports, many managers struggled to generate alpha. While long portfolios performed well, short portfolios detracted from performance. Despite markets climbing higher, managers remain cautiously positioned with low net exposures. Managers remain worried about slowing growth in the U.S. and China as well as unresolved issues in Europe. In addition, investors are concerned about the November elections and the year-end “fiscal cliff” of tax cuts and economic stimulus that could drive the U.S. economy into recession.

“Stocks took a leap of faith that the Fed is making plans to shore up the economy and financial markets. The market rose +3% after the GDP was reported at 1.5%.” said Lee Hennessee, Managing Principal of Hennessee Group. “Hedge funds continue to be frustrated by a challenging investment environment. Managers remain steadfast, refusing to chase brief relief rallies and risk being whipsawed. Managers are waiting for markets to fit their strategy and for macro dominance to abate before aggressively deploying risk.”

The Hennessee Arbitrage/Event Driven Index advanced +0.70% (+4.17% YTD) in July. Like equity markets, credit markets were volatile, but posted gains by month end. Treasury yields ended the month lower, as the yield on the 10 Year U.S. Treasury declined 16 basis points from 1.67% to 1.51%. The Barclays Aggregate Bond Index increased +1.38% (+3.78% YTD) and the Barclays High Yield Credit Bond Index increased +1.90% (+9.30%). The spread of the BofA Merrill Lynch High Yield Master Index tightened 28 basis points from 6.44% to 6.16%. In addition, many managers experienced gains in asset-backed securities (ABS) and especially residential mortgage backed securities (RMBS), which had a strong month as investors continued to reach for better yields. Managers still like the space but state that the easy money has been made. The Hennessee Distressed Index increased +0.91% in July (+4.01% YTD). Distressed managers experienced gains as the markets rallied. Hedges detracted from performance. Some managers experiencing outsized gains from distressed exposure in Europe. The Hennessee Merger Arbitrage Index increased +0.38% in July (+2.54% YTD). Despite the market rally, merger arbitrage managers posted modest gains due to mixed performance across core positions, including CNOOC bid for Nexen. The Hennessee Convertible Arbitrage Index advanced +1.04% (+6.00% YTD). Convertible arbitrage managers were positive as risk markets rallied, yields continued to decline, and credit spreads tightened.

“Managers like high yield bonds as there is no foreseeable reason for the yield curve to steepen with the current economic condition and monetary policy,” commented Charles Gradante. “Managers also state that government bonds are overvalued and they will begin to short them at some point in the future. It will be hard for the Fed to keep U.S. rates down indefinitely. Any good news from here could lead to a reversal. Managers believe that there will be a time when shorting Treasuries and German Bunds is going to be very profitable.”

The Hennessee Global/Macro Index advanced +1.04% (+1.33% YTD) in July, its best month since February. Global equities were volatile, but posted gains. The MSCI All-Country World Index ended the month up +1.25% (+5.51% YTD) on speculation the ECB would buy bonds to help cut borrowing costs and save the euro. The index reversed course several times in July, registering 3% swings on four separate occasions. International hedge fund managers posted gains, as the Hennessee International Index advanced +1.37% (+3.55% YTD). Emerging markets were also positive as the MSCI Emerging Markets Index gained +1.61% (+3.94% YTD). Hedge fund managers posted gains, but underperformed due to conservative exposure levels, as the Hennessee Emerging Market Index advanced +0.93% (-2.07% YTD). Macro managers posted gains in July, as the Hennessee Macro Index advanced +3.10% (+2.83% YTD). Macro managers posted a strong month with profits coming from a several trades, including long commodities, long bonds, long the U.S. dollar, and short the euro. Agricultural commodities had a strong month due to supply concerns caused by the drought in the U.S. Managers generated gains in soybeans, wheat and corn, which all rallied sharply. Oil and natural gas also posted gains. In currencies, the U.S. Dollar gained +2.5% against the Euro, while declining -1.5% against the Yen. Macro managers also had positive contributions from U.S. and German fixed income, which profited from weakening European economic conditions and a downgrade of Chinese growth forecasts by the IMF.

Hedge funds posted positive returns for July, making it the first month since February to witness healthy returns. In July, the Eurekahedge Hedge Fund Index was up 1.15%¹, as managers capitalised on trends across several asset classes. Comparatively the MSCI World Index was up 1.05%².

Key highlights for July 2012:

• Hedge funds were back in the black with positive performance numbers in July after four months of negative returns.
  
  
• CTA/managed futures funds witnessed the best monthly return since December 2010, gaining 2.56% in July 2012; systematic trading managers posted 3% returns.
  
  
• The Mizuho-Eurekahedge Top 100 Index rose 2.11% in July, which was double the gain posted by global markets³.
  
  
• Latest research showed that investors increased allocations to global macro investing funds and macro managers have raised over US$25 billion June year-to-date.
  
  
• North American fixed income hedge funds witnessed their highest monthly in more than 10 years – gaining 3.95% during the month⁴.

 

Main Indices

Main Indices	July 2012*	2012 Returns	2011 Returns
Eurekahedge Hedge Fund Index	1.15	2.62	-3.57
Eurekahedge Fund of Funds Index	0.79	1.56	-5.41
Eurekahedge (Long-Only) Absolute Return Fund Index	0.78	5.36	-13.89
Eurekahedge Islamic Fund Index	0.91	3.92	-3.40

The close of July saw most regions in positive territory with European managers posting the best gains as the underlying markets rallied strongly in the last week of the month. Rallies were driven by positive remarks from ECB President Mario Draghi, who suggested further policy support for the region. The Eurekahedge European Hedge Fund Index was up 1.36% during month with the Eurekahedge Eastern Europe & Russia Hedge Fund Index gaining 2.44%.

 

Regional Indices

Regional Indices	July 2012*	2012 Returns	2011 Returns
Eurekahedge North American Hedge Fund Index	0.67	3.26	-0.33
Eurekahedge European Hedge Fund Index	1.36	2.79	-6.21
Eurekahedge Eastern Europe & Russia Hedge Fund Index	2.44	0.32	-20.35
Eurekahedge Japan Hedge Fund Index	-1.47	-0.58	-1.35
Eurekahedge Emerging Markets Hedge Fund Index	0.89	3.08	-8.06
Eurekahedge Asia ex-Japan Hedge Fund Index	0.44	2.18	-12.43
Eurekahedge Latin American Hedge Fund Index	0.87	5.69	2.06

Among other regions, managers investing in emerging markets and Latin America posted returns of 0.89% and 0.87% respectively, profiting from trends in agricultural commodities and the Euro-spurred month-end rally. Asia ex-Japan and North American funds also witnessed positive returns in July while Japanese hedge funds were down 1.47%. The Japanese sector declined through the month due to a sombre global economic outlook, yen appreciation and European debt concerns – the Tokyo Topix lost 4.39% during the month.

 

Strategy Indices

Most strategies were positive in July amid strong trends across a number of sectors. CTA/managed futures funds posted the best results during the month with managers gaining 2.56% on average – the highest return since December 2010. Systematic/quantitative trading secondary mandates were the best performing, averaging gains of 3% as trend-following strategies proved successful across the fx and agricultural commodities space. Macro investing managers also posted gains from these sectors, delivering returns of 1.49% during the month. A number of macro managers reported gains from exposure to interest rates and fixed income as safe haven assets performed well during the month amid increasing uncertainty in the markets. The Eurekahedge Fixed Income Hedge Fund Index also registered strong returns in July, gaining 1.28%.

Strategy Indices	July 2012*	2012 Returns	2011 Returns
Eurekahedge Arbitrage Hedge Fund Index	0.79	3.90	1.35
Eurekahedge CTA/Managed Futures Hedge Fund Index	2.56	1.96	-1.39
Eurekahedge Distressed Debt Hedge Fund Index	0.42	3.05	-2.17
Eurekahedge Event Driven Hedge Fund Index	-0.08	1.69	-4.40
Eurekahedge Fixed Income Hedge Fund Index	1.28	5.11	0.85
Eurekahedge Long/Short Equities Hedge Fund Index	0.46	1.89	-6.90
Eurekahedge Macro Hedge Fund Index	1.49	1.16	-1.18
Eurekahedge Multi-Strategy Hedge Fund Index	0.82	3.42	-2.30
Eurekahedge Relative Value Hedge Fund Index	1.00	6.77	-0.78

 

Mizuho-Eurekahedge Indices	July 2012*	2012 Returns	2011 Returns
Mizuho-Eurekahedge Index - USD	1.59	2.45	-2.07
Mizuho-Eurekahedge TOP 100 Index - USD	2.11	3.39	1.87
Mizuho-Eurekahedge TOP 300 Index - USD	1.93	2.72	0.04

 

Eurekahedge indices are available for download from www.eurekahedge.com/indices/hedgefundindices.asp and are updated with the latest fund returns at 23:30 GMT every day. Index values and data can be downloaded for free and subscribers can download the full list of index constituents. Please contact indices@eurekahedge.com for more information.

Managed Futures and Credit Hedge Funds Start 2H 2012 with a Strong July

Hedge funds reporting July performance show a median return of +0.7% versus +1.4% for the S&P 500 Total Return. YTD, hedge funds are +3.1% vs. +11.0% for the S&P 500 TR. The industry's performance in July was most positively influenced by managed futures strategies which benefited not only from the return of trending USD strength, but from many which appeared well positioned to benefit from the drought induced spike in grain prices. Credit strategies produced their best month since January and have produced aggregate returns greater than 2x that of equity strategies in 2012.

• Hedge funds reporting July performance show a median return of +0.7%, in-line with regression estimates of +0.8%, versus +1.4% for the S&P 500 TR. YTD, hedge funds are +3.1% vs. +11.0% for the S&P.

• The HFN Hedge Fund Aggregate Index was +0.6% and +1.8% through July in 2011 and 2010, respectively, before finishing those years -5.0% and +10.6%.

• The Eurozone’s continuous state of flux along with poor U.S. jobs data and its impact on monetary policy expectations continued to influence global markets in July. Unlike June when multiple macro events pushed equities broadly higher, much of July’s news was negative until the ECB president’s comments on the 25th provided a questionable basis for a positive reversal.

• The industry’s performance in July was most positively influenced by managed futures strategies which benefited not only from the return of trending USD strength, but from many which appeared well positioned to benefit from the drought induced spike in grain prices.

• Prior to the month-end rally, July was challenging for directional equity strategies and those with a long bias lagged significantly. Credit strategies produced their best month since January and have produced aggregate returns greater than 2x that of equity strategies in 2012.

• Through June, hedge fund assets have fallen for four consecutive months to $2.5 trillion, a decline of $20.8 billion in June and $53.4 billion in Q2. Net outflows occurred in 8 of the last 12 months, during which $28 billion has been taken out of the industry. Redemptions from FoFs appear to be the outflows’ primary driver, offsetting what is likely healthy direct investment.

• In reaction to the theme of difficult to predict, macro driven markets, investor flows were weak across the board in June, particularly for event driven equity and emerging markets. In Q2, credit and macro strategies were two of the few sectors receiving net inflows.

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