Emerging market hedge funds stand out in mediocre year |
Date: Tuesday, October 16, 2012
Author: Katya Wachtel, Reuters
Fund managers that specialize in investing in emerging markets have achieved
standout gains of nearly 8 percent in a year when the typical hedge fund has
eked out returns of about 5 percent, recent data showed. Emerging market-focused hedge funds gained 4.5 percent in the third quarter,
adding about 2.6 percent in September, according to industry tracker
eVestment|HFN. Hedge funds, on average, gained only 1 percent in September and 2.79 percent
for the quarter. Year-to-date average returns in the more than $2 trillion
industry were about 5 percent through September, compared to emerging market
funds, which were up 7.8 percent over the same period. Those gains still trailed the benchmark S&P 500 stock index, which added 2.25
percent last month and climbed 16.43 percent for the year through September 30. Still, the quarterly gains achieved by emerging market hedge funds were
better than any other major category of fund, data from eVestment|HFN showed,
including credit funds, which have posted solid performance this year with
successful investments in high-yield junk bonds as well as mortgage-backed
securities. This year's gains represent a turnaround for emerging market funds, which
lost 16.4 percent in 2011, far more than the 5 percent losses recorded by hedge
funds on average. Despite strong returns among emerging market funds, investors withdrew $4.9
billion in July and August. Through August 31, emerging market funds experienced
outflows of almost $18 billion, according to the latest eVestment flow data. "Investor flows for emerging market hedge funds have been among the worst in
the hedge fund industry over the last year with net outflows occurring in 11 of
the last 12 months," Peter Laurelli, head of industry research for eVestment|HFN
emailed. "However, there isn't necessarily a lack of interest in emerging market
exposure from institutional investors," he added, noting that large investors
are opting to get emerging market exposure "outside the hedge fund space," where
fees are smaller. Emerging market mutual bond funds, for example, have attracted inflows for
their attractive yields while emerging market hedge funds have seen money pulled
out. The Barclays Capital Global Emerging Markets Index has jumped 15.1 percent
this year compared with a 3.77 percent gain for the broader Barclays Aggregate
Bond Index, as investors have flocked to emerging market bond funds in the
period. For example, the TCW Emerging Markets Income Fund, which is up 16.17 percent
for the year, attracted nearly $784 million in new money in the third quarter,
according to mutual fund tracker Morningstar. Some hedge funds the bet in emerging markets have posted similarly impressive
gains. BTG Pactual's Global Emerging Markets and Macro Fund rose about 20
percent through September 28, according to data from HSBC's private bank. And Contrarian Capital Management's roughly $220 million Emerging Markets OFF
Fund rose about 13.3 percent through September, according to HSBC data. Some emerging market funds, however, have struggled to keep pace with their
competitors. Louis Bacon's Moore Emerging Equity Long/Short Fund was down 16.4
percent through September 30, for example. While most hedge funds trailed the broader stock market, India-focused funds
beat the S&P 500's 6.35 percent rise in the three months to September, with
gains of 9.4 percent, according to eVestment|HFN. Hedge funds that focus on investing in India added about 10 percent in
September alone, and have gained 23.3 percent for the year. Those funds sank
almost 34 percent last year.
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