July Hedge Fund dragged down by macro & managed Futures

Funds most willing to embrace the current equity market euphoria have been among the industry’s best performers.

August 08, 2013 12:20 IST | India Infoline News Service
Hedge funds rose an average of 1.2% in July and have returned an average of 4.5% through the first seven months of 2013. On an annualized basis the industry is on pace to return 7.8% in 2013, or 12.1% with Macro and Managed Futures strategies removed.

Funds most willing to embrace the current equity market euphoria have been among the industry’s best performers. On a sector by sector basis, technology, healthcare and micro cap funds were best situated in July for another month of new records from equity indices.

Hedge fund returns in July, and for much of 2013, were again weighed down by poor aggregate performance from Macro and Managed Futures strategies. Whether losses are mainly due to the recent three month surge in treasury yields, falling AUD or the surge in oil, the group is simply not getting the trend or momentum right.

The last three month cumulative return for Macro strategies has been their worst stretch since the three months ending October 2008. For Managed Futures funds you have to look back to June 2004 to find a worse three month period, however they have come close to matching the magnitude of the current drawdown several times in just the last year.

Credit strategies resumed their path upward in July with securitized credit funds again leading the way. Those focused on mortgage markets have faired relatively well during the recent treasury induced MBS market declines, returning an average of 0.4% while the Barclays US MBS Index has fallen 2.6%.

Investor flows for credit strategies have remained strong despite the recent bond market turbulence, with a preference away from purely directional exposures. It is the aforementioned relative performance which has likely been a key reason for this strength as institutional investors seek alternative exposures to their substantial traditional long-only bond fund allocations.

Emerging market hedge fund returns rebounded in July, with the exception of Brazil. Brazil focused funds have shown mixed results in an otherwise positive market environment in July and trail only India as the worst exposure for hedge funds in 2013.
Funds investing in the Middle East & Africa have been one of the best performing universes by region and relative to the overall industry in both 2013 and 2012.

Commodities trail only exposures to India and Brazil in terms of loss generation in 2013 after yet another negative month in July, the universe’s sixth consecutive negative month during which they have posted an aggregate decline of 5.5%.

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