HFRI Falls in August as Global Equities Post Sharp Losses

Sep 9 2015 | 1:43pm ET

Hedge funds declined in August as global equity markets experienced sharp losses led by uncertainty over Chinese growth, falling oil prices and the timing of US Federal Reserve interest rate increases, according to data released today by HFR. 

The HFRI Fund Weighted Composite Index (FWC) fell 1.87% for the month to an NAV of 12443.31, paring the YTD performance for the FWC to a gain of 0.2%. The August decline for the FWC was the worst monthly performance since May 2012. Following several years in which the HFRI trailed strong equity market gains, the FWC has outperformed the S&P 500 by over 400 basis points in August and 300 basis points year-to-date.

August performance declines were distributed widely across primary hedge fund strategies, with areas of sub-strategy gains and muted losses across low beta, defensively-positioned Macro, Arbitrage and Market Neutral sub-strategies. The HFRI Macro Index posted a decline of 1.2% in August, with mixed declines across constituent sub-strategy areas as volatility spiked across equity, commodity, currency, emerging markets and fixed income assets.

The HFRI Macro Discretionary Thematic and HFRI Currency Indices declined by -0.2 and -0.1, respectively, as the US Dollar gained, with mixed performance benefitting from conservative positioning and opportunistic, active, intra-month portfolio trading.

Similarly, the HFRI Macro: Multi-Strategy Index declined by 0.3%. The HFRI Commodity Index posted a decline of 0.95% as oil traded in a wide intra-month range, while the HFRI Macro: Systematic Diversified/CTA Index declined by 1.9%, with a wide range of underlying constituent performance.

Fixed income based Relative Value Arbitrage (RVA) strategies posted declines across credit multi-strategies, with the HFRI Relative Value Index declining 1.27% for the month.

The HFRI RV: Asset Backed Index posted a narrow increase of 0.07% for the month, bringing YTD performance to 2.9%, while the HFRI RV: Multi-Strategy Index declined 1.8% for the month, paring the Index YTD gain to 0.7%. The weakest area of RV sub-strategy performance was the HFRI RV: Yield Alternatives Index, which posted a sharp decline of 2.1%, bringing YTD performance to a decline of 4.6%.

Event Driven (ED) strategies also posted declines for the month, with the HFRI Event Driven Index declining by 1.7%, as many deal spreads widened, with losses in high beta strategies only partially offset by market neutral exposures. The HFRI Merger Arbitrage Index posted a narrow decline of -0.08%, paring the YTD gain for the Index to 3.0%.

Credit market neutral ED funds also posted a narrow decline, with the HFRI ED: Credit Arbitrage Index falling -0.3%, bringing the YTD gain to 0.6%. Shareholder Activist funds were the weakest area of ED performance, with the HFRI Activist Index declining -3.5%, the worst monthly performance since May 2012.

The HFRI Equity Hedge (EH) Index posted a decline of 2.6% for August, the worst monthly decline since May 2012, paring the YTD gain for EH to 0.07%. Short Bias funds led EH sub-strategy performance, with the HFRI Short Bias Index gaining 5.0%, while the HFRI Equity Market Neutral Index posted a narrow decline of 0.04% for the month.

High beta growth strategies were the weakest area of EH performance with the HFRI Fundamental Growth Index falling 4.1% for the month, the worst decline since May 2012.

The HFRI Emerging Markets Index posted a decline of 4.5% in August, the worst decline since May 2012, driven by losses across Emerging Asia. The HFRI China Index posted a decline of 7.55%, bringing the recent performance drawdown to -18.5% since June, though the Index maintains a small gain of 0.3% YTD as a result of strong early year gains.

Just over 31% of all hedge funds posted gains in the month of August, while the top quartile of all hedge funds posted an average gain of 2.8%.

“After falling for several months, macroeconomic volatility and uncertainty increased sharply as a result of slowing growth in China and the first and second order impacts this has on global equity, currency, commodity and fixed income markets. 

August hedge fund performance displayed a wide range of performance dispersion, including differentiation between strategies, sub-strategies, regions, high and low beta exposures, as well as between individual funds, maintaining a small YTD gain for the HFRI,” stated Kenneth J. Heinz, President of HFR. “Despite August declines, the HFRI outperformance of equity benchmarks YTD for 2015 expanded to the widest level since 2008 as a result of conservative positioning and opportunistic trading. This outperformance is likely to continue in coming months, concurrent with volatility trends and across top performing, opportunistically positioned hedge fund strategies.”

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