Hedge Funds Back in the Red After a Year of Positive Returns

Date: Wednesday, July 17, 2013
Author: Joanna Hammond, Prequin

Preqin’s early hedge fund benchmarks show that after 12 consecutive months of positive returns, hedge funds were back in the red in June, posting average returns of -1.52%. This brings the year to date return to 3.43%, comparable to the 3.52% generated during the same period last year. All strategies tracked by Preqin reported a loss in June, with long/short funds faring the worst, posting -1.66% on average. The strategy was one of the better performers in May, making 1.33%, and is still beating the year-to-date benchmark, returning 4.48% on average in 2013. Event driven funds were the top performing in the previous month, but were still down -0.85% in June, bringing the year to date average to 6.57%. Event driven remains the most successful strategy over the past 12 months, posting 15.85%. In contrast, the first half of 2013 has been modest for relative value funds, which only generated returns in excess of 1% in February (+1.02%). However, the strategy exceeded the benchmark in June, albeit with average returns of -0.59%, to make 3.40% in 2013 to date. Multi-strategy funds recorded their biggest monthly loss since May 2012, returning -1.49%, taking the year to date return to just 1.86%, lower than the same point last year (+2.60%). Macro funds lost -1.51% in June, bringing the average cumulative return into negative territory (-0.30%) for the first time in 2013. Unsurprisingly, long/short funds of hedge funds had a poor month, returning -2.08% in June, down from 1.01% in May. This contributed to the fund of hedge funds benchmark of -1.98%, its lowest level since September 2011 (-2.46%).

Preqin’s regional hedge fund benchmarks were all negative in June, with emerging markets the worst performing region (-3.06%). Asia-Pacific funds underperformed the main hedge funds benchmark for a second consecutive month, posting -1.72% in June. Although the region is still the highest performing in 2013 (+7.53%), managers will be keen to reverse this recent downward trend. Both the North America and Europe benchmarks were also down in June, at -0.64% and -0.92% respectively.

Preqin’s UCITS benchmark has also seen its run of 12 consecutive positive months come to an end in June, with UCITS funds averaging -1.75% for the month. This brings the H1 2013 return to 1.66%, slightly up from 1.59% in the first half of 2012. UCITS relative value was the only strategy to remain in the black, making 0.16%. Macro UCITS funds were again the worst performing, posting -2.42% last month to bring the year to date to -2.77%. In June, long/short UCITS did not perform much better (-2.08%); however, the H1 return of 3.62% easily exceeds the UCITS hedge fund benchmark. UCITS vehicles with a focus on emerging markets performed poorly in June, posting -5.17% on average, and -2.67% for the year to date.

The preliminary CTA benchmark recorded a loss of 1.26%, a slight improvement on the previous month, which saw average returns of -2.02%. The benchmark failed to return to positive territory by the end of the second quarter, with the average return of 2013 to date down at -1.10%.