Deutsche Banks monthly hedge fund trend report for September 2012 showed the median fund finishing up 0.50% as markets rallied in response to positive signals from the Euro zone.
Globally, Commodity Trading Advisors (CTAs) had a challenging month with the median fund down 1.07%. All other strategies posted positive returns in August. Year to date, the median hedge fund is up 3.15% with credit (7.54%) and distressed (7.76%) strategies extending their gains.
The report, which also contains securities lending research, finds that the global economic slowdown had a considerable impact on the steel and coal industries. Meanwhile shorts are particularly interested in the renewable energy sector in Europe, and the electronics and transport space in Japan.
The global steel industry had a bumpy ride in August as represented by the price activity in the Market Vectors Steel Index Fund. While the ETF fell by just under 3% on the month, the stock closed the month of August down more than 9% from its monthly high on August 10th ($46.22). Due to the global economic slowdown, demand for steel in Europe, the US, and China has declined.
Deutsche Banks securities lending team in Japan highlights the sector as one to watch, as poor demand conditions in China dragged iron ore prices to their 32-month lows and funds have been enquiring about the borrow situation. While the market saw close to $100 million in returns in Nippon Steel this month, we may see an increase in shorts going forward as lenders indicate interest is starting to rise again. Kobe Steel is another name to watch in the sector with the CDS widening and reported shorts starting to increase towards the end of the month,” says the report.
In Europe, the French Financial Tax that came into effect on Aug. 1 2012 seemed to have little impact on volumes, says the report. However, continued economic unrest in the EU and uncertainty over an effective solution to the ongoing sovereign credit issues led to overall lower volumes in both execution and subsequently stock loan. In addition, short sale bans introduced in Spain and Italy towards the end of July further hampered flow. Renewable energy in Europe continues to see demand from shorts. The renewable energy sector remained one of the most concentrated shorts in Europe with levels in Vestas Wind above 12%, short interest remains in excess of 15% of the free float with funds staying short through the recovery from the low of 25DKK at the end of July through DKK 40. The stock is still down over 35% from the peak of 2012.
The report shows the Japanese transport sector remains a focus area with demand for All Nippon Airways having increased in the run up to Japan Airlines’ listing on Sept. 19. “Rates are holding firm in the 25% range and we do expect there is around 12 million shares worth of callable exposure in the market, which will funds will need to cover ahead of the Sept. 20th record date.”
The main headline from Asia reports that China will open the door to foreign hedge funds looking to raise funds from onshore China.
Investors globally continue to search for credit strategies, with particular interest in structured credit, says the report. Globally, we are seeing increased demand for managers in Asia. As such, we have received a number of requests in the past month for our upcoming Asia Managers Forum set to take place this October in Hong Kong. Further, we have noticed that of those interested in Asia, an increased number are interested in learning about Greater China onshore managers, says the report.
(JDC)