Eurekahedge Hedge Fund Index Flat, But No Carnage

Date: Wednesday, January 11, 2012
Author: Brian Bollen's Blog

Despite the apparent carnage sweeping through the hedge fund sector, with losses of billions of dollars being reported for well known name, the Eurekahedge Hedge Fund Index was down just 0.21% in December as volatile market conditions continued into the last month of the year. The index was down 4.16% for the year, making it the second worst yearly return on record.

Hedge funds still outperformed the underlying markets, however. This outperformance was led by larger hedge funds, as evidenced by the capital-weighted Mizuho-Eurekahedge Top-100 Index, which was up 2.01% in 2011. The MSCI World Index was down 0.4% in December and 9.9% for the year.

Key highlights for December 2011:

2011 was the second worst year on record with the Eurekahedge Hedge Fund Index down 0.21% in December and 4.16% in 2011.

The asset-weighted Mizuho-Eurekahedge Top-100 Index finished the year with gains of 2% showing that the larger funds performed better than the overall industry.

Total asset flows for the year were US$67 billion, taking the size of the industry to US$1.72 trillion.

Launch activity remained strong throughout 2011 with more than 1,100 funds launches in the year (the 2nd highest total on record) - capital raising remains as tough as it ever has been however.

Latin American hedge funds provided the best returns for the year: up 2.84%.

Fixed income and arbitrage were the best performing strategies for the year – up 1.19% and 0.71% respectively.

Japanese hedge funds outperformed the Topix by 17.9% in 2011.

The Eurekahedge Long Only Absolute Return Fund Index witnessed its fourth annual decline in 2011, down 13.63% for the year.

Relative value hedge funds witnessed the largest percentage increase in AuM (year-on-year) during 2011, with gains of 20% for the year.

CTA/managed futures funds and macro hedge funds attracted the most money from investors in 2011, gaining US$19 billion and US$16 billion respectively in net positive asset flows.

Distressed debt hedge funds saw the best returns in 4Q 2011, gaining an relatively impressive 2.69%.

Long/short equity funds were the worst performers during 2011, as they saw losses of 7.43%.

Regional Indices

December results were mixed across the different regions with Japanese hedge funds delivering the best returns, with gains of 1.17% for the month, bringing the YTD figure to -1.09%. Comparatively the Tokyo Topix was flat in December and down by 18.9% for the year. Long positions in the chemicals and pharmaceutical sectors helped Japanese managers during the month. Japanese managers have provided significant downturn protection in 2011 by reducing their net and gross exposures amid times of uncertainty and market declines.

Among other regions Latin American hedge funds delivered positive returns of 0.65% for the month, meaning that they finished 2011 with a healthy increase of 2.84% for the year. Onshore Latin American hedge funds benefited from the high interest rates earned on the Brazillian real, which helped to offset portfolio losses in 2011. The Eurekahedge North American Hedge Fund Index was flat in December and finished the year with returns of -1.12%.

Asia ex-Japan funds were down 1.32% in December and finished the year with negative returns of 12.85%. Regional funds had a rough time in 2011 with most market indices registering losses for the year – the MSCI AC Asia Pacific Ex Japan Index was down 19.34% during the year. Additionally, regional funds also faced significant losses through depreciating local currencies.

Strategy Indices

Returns for December were mixed across the different strategic mandates, with distressed debt investing funds gaining 1.34% during the month, as the year-end risk-on trades proved helpful for the strategy, the BofA Merrill Lynch High Yield Index was up 2.48% in December. CTA/managed futures funds also delivered positive returns of 0.4% during the month, gaining on their fx positions (short euro) and exposure to agricultural commodities.

In the yearly return measure, funds with market neutral mandates, employing arbitrage strategies and those investing in safe-haven assets (e.g. fixed income) finished with positive returns. The Eurekahedge Arbitrage Hedge Fund Index was up 0.71% in 2011 while the Eurekahedge Fixed Income Hedge Fund Index gained 1.19%. Funds with exposure to equities and directional biases suffered the most losses in 2011 as there were no strong trends during the year. Global macro investing funds also witnessed losses in 2011 as global market movements were highly correlated, hence compromising the benefits of diversifying across different markets