All of the primary hedge fund strategies posted positive performance in July, the second consecutive positive month for many hedge funds, with the HFRI Fund Weighted Index returning 1.05%. These figures were highlighted in two separate trend reports from J.P. Morgans prime brokerage division and EDHEC-Risk.
The J.P. Morgan report noted institutional investor groups across the globe remain committed to hedge funds as the asset class overall posted positive performance in July. Pension funds, in particular, appear to be driving most of the new flows into hedge funds. Consistent with the past few months, institutional investors continue to be interested in macro, CTAs, and new launches, said the report.
The report noted that year-to-date, equity-biased managers with long exposure to companies who derive significant revenues from the U.S. have outperformed those managers who invest in companies that derive a higher portion of their revenues from Europe.
Within equity-biased and macro strategies, the industry continues to see a wide range of dispersion in performance, said the report. Equity-biased and event driven managers have remained relatively cautious, which has led to underperformance relative to market indices. The S&P 500, Nasdaq 100, and MSCI World indices were up 1.39%, 0.19%, and 1.30%, respectively, in July while the HFRI Equity Long Short and HFRI Event Driven indices were up 0.55% and 0.29%, respectively. Despite the increase in equity markets, net leverage of Equity Long Short funds on J.P. Morgans Prime Brokerage platform remained constant at 0.66 month-over-month.
J.P. Morgan’s positive review of performance is complemented by Hedge Fund Researchs July index, released two weeks before the investment bank’s report, which said hedge funds posted gains for the second consecutive month in July as Macro CTA managers captured strong trending dynamics across multiple asset classes, pushing the HFRI Macro: Systematic Diversified Index to a gain of +2.8%, according to data released today by HFR
The HFRI Fund Weighted Composite gained +1.1% in July, the strongest monthly performance since February, with positive contributions from relative value arbitrage (RVA), equity hedge (EH) and event driven (ED) strategies complementing the Macro gains. The HFRI Emerging Markets Index gained +1.1%, also the strongest month since February, while the HFRI Fund of Funds Index advanced +0.7%, ending three consecutive months of declines.
EDHEC-Risks alternative indices also showed all market segments were up. Stocks gained 1.39% (S&P 500) with a nearly stationary implied volatility (VIX: 18.9%). Fixed-income instruments exhibited significant performance across all risk classes: worldwide and US high-grade (1.01% and 0.93% respectively), convertibles (0.95%), and the credit-spread index (0.66%). Commodities staged a comeback (6.07%) after having suffered huge losses over the last three months, while the Dollar (0.13%) was almost unchanged.
Hedge fund strategies exposed to the equity risk factor benefited from the market environment, but captured less than half of its return due to rather low dynamic exposure: Equity Market Neutral (0.35%), Event Driven (0.59%) and Long/Short Equity (0.43%).
Convertible Arbitrage returned 0.90%, exhibiting some alpha in excess of its risk-drivers-induced performance, said EDHEC-Risk. The CTA Global strategy (3.05%) showed another one of the wild swings, which has characterized its track record since the beginning of the year, the largest part of it being idiosyncratic (in excess of just 1% stemming from an exposure to bonds and commodities).
Funds of Funds, finally, with all the underlying strategies showing gains, recorded its best performance since February (0.72%).
(JDC)