eVestment: Hedge Fund Aggregate Dips 0.76% in October to End Eight-Month Run

Nov 9 2016 | 4:39pm ET

The hedge fund industry ended an eight-month string of consecutive monthly gains with a decline in October, according to eVestment’s latest Hedge Fund Performance Report, supported by distressed and relative value credit strategies but hampered by negative returns among CTAs, event-driven and long/short equity managers.

The company’s Hedge Fund Aggregate fell -0.76% in the period, bringing the measure’s year-to-date performance to +3.70%.  Dispersion between positive and negative performance was below the 2016 average, the company noted, suggesting that while October was negative, it was not dramatically so. Nonetheless, with asset flows showing hedge fund investors redeeming significantly from hedge funds over the past few months, the negative return for October will likely keep the pressure on for several months to come. 

Illustrating this disconnect, credit exposure has produced leading market and strategy returns in 2016 and continued in October, eVestment said. However, credit fund flows have been highly negative, while managed futures strategies have gained assets yet been unable to deal effectively with dominant market trends.

Key highlights from eVestment’s October report:

  • Distressed hedge funds led the pack in October, returning +2.06%, bringing YTD performance to +9.96%. This is a far cry from the -7.76% return distressed hedge funds produced in 2015. In fact, this year, many distressed funds are producing returns north of 15%, but investor asset flows in 2015 and YTD 2016 for the strategy have been negative.
  • Commodity hedge funds posted their third decline in the last four months in October, losing -0.99%. The universe remains in positive territory for the year, but recent returns are already showing an impact on investor sentiment with flows for commodity strategies negative in September for the first time since March 2015.
  • After a difficult start to 2016, emerging market funds have been on a roll since March. Brazil-focused funds were a standout, delivering +6.74% in October and +46.18% YTD. This is a sharp contrast to the -32.72% performance Brazil-focused funds turned in last year. Latin American-domiciled funds also turned in some impressive results in October, producing +3.40% returns, bringing YTD returns to +27.13%.
  • Activist managers had an excellent Q3, returning greater than 5.5%, however broad equity market declines put a stop to the gains. The strategy was negative in October, however activists funds still remain one of the better performing segments of the industry. 
  • Long/short equity managers are not having a good year. Losses in January appeared to result in reductions of long exposures causing many not to meaningfully take part in the positive market movements. The difficult start to Q4 does not bode well for future flows to the strategy, with the segment down -1.33%.
  • Event-Driven funds took a negative turn in October, delivering -1.69% after broad equity market declines put a stop to the segment’s gains. While negative in October, activist funds have seen a generally strong, positive year so far, with YTD returns at +4.64%.
  • eVestment hasn’t written extensively about India-focused funds recently, but returns greater than 30% since February are hard to ignore. While 2015 was not outstanding, India funds were positive last year. Their 2015/16 returns of 18% puts them behind only Russia as the best performing segment of the entire hedge fund industry since 2015.

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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