Hedge Funds Feel The Heat In August As China Woes Push Down Returns - HFR

Tom Burroughes

10 September 2015

China’s economic woes hurt hedge funds in August, with global equity markets suffering losses, according to figures compiled by Chicago-based .

The HFRI Fund Weighted Composite Index® fell by 1.87 per cent for the month to a net asset value of $12,443.31, reducing the year-to-date performance for the index to a gain of only 0.2 per cent.

The HFRI Emerging Markets Index dropped 4.5 per cent in August, the worst decline since May 2012, driven by losses across emerging Asia. The HFRI China Index slid by 7.55 per cent, bringing the recent performance drawdown to 18.5 per cent since June, though the index maintains a small gain of 0.3 per cent year-to-date as a result of strong early year gains.

The August decline for the index was the worst monthly performance since May 2012. Following several years in which the HFRI trailed strong equity market gains, the index has outperformed the S&P 500 index of leading US stocks by more than 400 basis points in August and 300 basis points year-to-date.

August performance declines were distributed widely across primary hedge fund strategies, with areas of sub-strategy gains and muted losses across low beta, defensively-positioned macro, arbitrage and market neutral sub-strategies.

The HFRI Macro Index fell 1.2 per cent in August, with mixed declines across constituent sub-strategy areas as volatility spiked across equity, commodity, currency, emerging markets and fixed income assets.

The HFRI Macro Discretionary Thematic and HFRI Currency indices declined by 0.2 and 0.1 per cent respectively, as the dollar gained, with mixed performance benefitting from conservative positioning and opportunistic, active, intra-month portfolio trading.

Fixed income-based relative value arbitrage strategies posted declines across credit multi-strategies, with the HFRI Relative Value Index declining by 1.27 per cent for the month. The HFRI RV: Asset Backed Index posted a narrow increase of 0.07 per cent for the month, bringing YTD performance to 2.9 per cent.

Event driven strategies also posted declines for the month, with the HFRI Event Driven Index declining by 1.7 per cent, as many deal spreads widened, with losses in high beta strategies only partially offset by market neutral exposures.

The HFRI Merger Arbitrage Index posted a narrow decline of 0.08 per cent, paring the YTD gain for the index to 3.0 per cent. Credit market neutral ED funds also posted a narrow decline, with the HFRI ED: Credit Arbitrage Index falling 0.3 per cent, bringing the YTD gain to 0.6 per cent.

Shareholder activist funds were the weakest area of event driven performance, with the HFRI Activist Index declining -3.5 per cent, the worst monthly performance since May 2012.

The HFRI Equity Hedge (EH) Index posted a decline of -2.6 per cent for August, the worst monthly decline since May 2012, paring the YTD gain for EH to 0.07 per cent. Short Bias funds led EH sub-strategy performance, with the HFRI Short Bias Index gaining 5.0 per cent, while the HFRI Equity Market Neutral Index posted a narrow decline of 0.04 per cent for the month.