The Eurekahedge Hedge Fund Index slumped 2.19 per cent in the volatile month of October, bringing year-to-date returns down to -2.08 per cent. The MSCI AC World Index (Local) declined 7.33 per cent in what turned out to be the worst month for both the hedge fund industry and the global equity market since 2011.
North American hedge fund managers lost 2.25 per cent over the month as underlying equity markets slumped despite robust economic fundamentals and the strong third quarter corporate earnings season in the US.
Over in Asia, concerns over slowing economic growth and the Fed’s tightening exacerbated the equity selloff and weighed on the region’s currencies and equity markets, which have been under pressure of the US-China trade spat for the better part of the year. Asia ex-Japan hedge fund managers lost 4.70 per cent in October, and are currently down 9.35 per cent for the year.
Long/short equities hedge fund managers bore the brunt of the equity market movement, which left them down 3.01 per cent over the month. Preliminary numbers show that more than 80 per cent of the fund managers utilising this strategy posted losses in October.
Barely a quarter of the underlying constituents of the Eurekahedge Hedge Fund Index avoided ending the month in the negative territory, and only 5.7 per cent of the hedge fund managers were able to maintain double-digit year-to-date performance, the lowest proportion ever recorded by the Eurekahedge database. The asset-weighted Mizuho-Eurekahedge Index (USD) declined 1.75 per cent during the month, narrowly outperforming the equal-weighted Eurekahedge Hedge Fund Index, indicating that the losses were heavier among the small-to-mid sized hedge fund managers. Indeed, the equal-weighted Eurekahedge Small Hedge Fund Index which comprises fund managers overseeing no more than USD100 million in assets was down 2.32 per cent, in contrast to the 2.00 per cent and 1.75 per cent losses posted by medium (USD100 million to USD500 million) and large (above USD500 million) hedge funds.
On an asset-weighted basis, hedge funds lost 1.75 per cent in October, bringing their year-to-date losses to 2.95 per cent, as captured by the Mizuho Eurekahedge Hedge Fund Index (USD).
Following 13 consecutive month of losses, long volatility focused hedge fund managers got it right in October and posted gains of 4.02 per cent – the highest among all strategic mandates. Despite these heroics, the CBOE Eurekahedge Long Volatility Hedge Fund Index was still down 3.30 per cent for the year.
North American fund managers continued to outperform their peers focusing on Asia or Europe, as they gained 0.91 per cent as of October 2018 year-to-date. The underlying long/short equities managers in the region were still up 1.42 per cent for the year in spite of the 3.87 per cent loss they suffered last month.
US-imposed tariffs continued to weigh on returns as Greater China fund managers posted their 5th consecutive month of losses, with the mandate down 6.25 per cent in October. On a year-to-date basis, the Eurekahedge Greater China Hedge Fund Index was down 13.83 per cent, marking its worst performance over the first ten months of a year since the 2008 financial crisis.
All of the major strategic mandates were down in October, with long/short equities suffering the worst blow from the equity market selloff. The Eurekahedge Long Short Equities Hedge Fund Index declined 3.01 per cent over the month and dragged its year-to-date return into the red for the first time this year.
Preliminary numbers showed that Indian hedge fund managers are down 3.73 per cent throughout the month as the weaknesses in Indian equities and rupee weighed on fund managers’ performance. The Eurekahedge India Hedge Fund Index (USD) was down 19.69 per cent for the year.
The bloodbath in October left AI/machine learning hedge funds at a loss, as the Eurekahedge AI Hedge Fund Index slumped 3.00 per cent over the month – its worst monthly performance ever recorded since inception. In contrast to the 9.00 per cent gains made in 2017, AI fund managers have lost 6.54 per cent as of October 2018 year-to-date as they floundered through the year.
The Eurekahedge CTA/Managed Futures Hedge Fund Index was down 2.87 per cent during the month as the plummeting oil and industrial metal prices dragged fund managers’ returns into the red. On a year-to-date basis, the index was down 4.44 per cent, and the total AUM managed by CTA/managed futures hedge funds globally has decreased by USD21.3 billion, the majority of which was contributed by investor redemptions.
The Eurekahedge Crypto-Currency Hedge Fund Index which tracks hedge funds investing in crypto assets was down 4.17 per cent in October, narrowly outperforming the Bitcoin price, which declined 4.32 per cent over the month. On a year-to-date basis, the index was down 56.90 per cent.
Hedge fund performance across strategic mandates was universally red in October, with all of the major Eurekahedge strategy indices posting losses. Macro hedge fund managers topped the table by losing only 0.52 per cent over the month, while on the other end of the spectrum long/short equities fund managers ended at the bottom of the table with a loss of 3.01 per cent. Hedge fund managers utilising CTA/managed futures posted losses of 2.87 per cent in October, marking it as the second worst month of the year for the strategy, trailing behind February, which saw the mandate down 4.12 per cent. Equities featured prominently as a major performance detractor for fund managers in October, with energy sector following closely behind, as industrial metal and oil prices slid down. On the other hand, rate derivatives and FX positions were cited as performance contributors throughout the volatile month, especially for macro fund managers. Fund managers with long volatility views ended the month on the winning side, as they generated profits from the increase in market volatilities. The CBOE Eurekahedge Long Volatility Hedge Fund Index was up 4.02 per cent during the month.