eVestment: Hedge Funds Rally in October on L/S Equity, Activist, China Gains

Nov 10 2015 | 5:46pm ET

The hedge fund industry produced a positive aggregate return of 1.19% in October, according to eVestment’s latest Hedge Fund Performance Report. The result, which comes after a period of intense global market volatility, brings year-to-date returns to nearly flat at -0.80%. 

Despite strong rebounds in most developed market indices during the month, eVestment’s report noted that equity hedge funds participated in October’s market rally at a muted pace. Returns of 3.25% from all equity strategies and 3.48% from long/short equity brought YTD returns to -0.17% and 0.43%, respectively. 

Activist strategies, meanwhile, benefited most from October’s rally despite well-highlighted yet isolated declines in the group, returning an average of 3.92% during the month. Returns remain negative for the year, however, as aggregate declines of -3.17% place them near the bottom of the industry YTD.

Emerging market hedge fund strategies also rebounded in October after a difficult year so far, led by funds focused on China’s markets. However, despite October’s 3.63% increase, emerging market hedge funds remain down -3.18% year-to-date through October. EVestment pointed out that despite the see-saw trading action earlier this year, the 6.48% increase in China-focused funds in October brought their YTD returns firmly into positive territory for the year at 6.02%. 

Commodity strategies, also hit hard for most of this year, did not follow suit; commodity funds were near flat in October, masking what was a volatile month in terms of dispersion of returns across strategies. The universe has produced highly negative average returns in 2015 and is down -7.31% YTD.

On the CTA side, eVestment said sharp moves in rate, currency and commodity markets, along with the equity rally in the second half of October, negatively impacted the managed futures space more broadly than any other market environments in recent months. The universe declined -0.61% in October, and for the first time this year, losses were generally worse among larger managers. 

Large global macro managers rebounded slightly in October after four consecutive months of decline, during which they lost an average of -4.08%. EVestment noted that the since macro hedge fund universe experienced meaningful redemptions in September (a trend that continued into October), it will be interesting to see if macro hedge fund managers pull additional capital from the segment going forward of if they are willing to sit tight. 

Interestingly given the tumultuous period earlier this year, eVestment’s research also highlighted that distressed hedge funds are in the midst of one of their worst years on record. October’s decline of -0.74% was the universe’s fifth consecutive monthly decline. At -5.11% for the year, distressed hedge funds are the industry’s worst performing major strategy. Credit funds, meanwhile, snapped a four-month losing streak with an average gain of 0.87% in October, led by returns from funds focused on real estate related securities and with exposure to the energy sector. 

Atlanta-based eVestment was founded in 2000 by Jim Minnick, Matt Crisp and Heath Wilson. The company boasts one of the largest, most comprehensive global databases of traditional and alternative strategies and provides institutional investment data intelligence and analytic solutions to clients worldwide.

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