New York (HedgeCo.Net) – Hedge funds started the first quarter of the year with another month of negative returns, down 0.18% in March as managers navigated through a choppy start to the year. However, strong returns posted by fund managers in the previous month saw them through with the Eurekahedge Hedge Fund Index up 1.05% in Q1 2014, outperforming the MSCI World Index which has gained 0.67% over the same period.
Highlights from March 2014:
· Global hedge funds were up 1.05% in Q1 2014, with North American and European fund managers leading the tables with returns of 2.50% and 1.63% respectively.
· Net asset flows for Q1 2014 stood at US$32.6 billion, with capital allocations to North American managers at US$ 17.7 billion and those for European managers at US$ 13.6 billion.
· Japan focused hedge funds posted their third consecutive month of negative returns – down 0.84% in March and 2.09% in the first quarter of the year.
· Latin America focused managers surpassed all regional mandates delivering the strongest gains – up 1.53% in March, and outperforming the MSCI EM Latin America Index by 2.45% in Q1 2014.
· Distressed debt investing hedge funds delivered their ninth consecutive month of positive returns – up 2.70% in the first quarter of the year.
· CTA/managed futures hedge funds continued to languish, down 0.98% in March and 0.33% in Q1 2014. Investors have redeemed US$5.0 billion from the strategy in the first quarter of the year.
· Eastern Europe & Russia focused hedge funds fared the worst, losing 2.54% in March and 8.02% in Q1 2014, weighed down by geopolitical tensions in the region.
Global markets remained largely flat-to-negative during the month as better-than-expected US jobs data and the reduction of the Fed’s monthly asset purchase program by another US$10 billion heightened concerns that US interest rates could rise faster than previously anticipated.
Investor sentiment improved towards the month end as Fed chairperson Janet Yellen shifted the focus of her ‘forward guidance’ away from an unemployment target towards a more qualitative improvement in the US labour market – a move that will give the Fed more flexibility to influence rates until a sound economic recovery is ensured.
Meanwhile, European markets trended downwards as fears over disinflation re-surfaced in the Eurozone, while in Asia, markets declined on news of disappointing PMI data from China and an impending sales tax hike in Japan. Emerging economies continued to show signs of stability with the MSCI Emerging Market Index advancing 1.69% during the month as major emerging market currencies stabilised.
Most regional mandates ended the month in negative territory with Eastern Europe & Russia investing hedge funds seeing the strongest decline – down 2.54% as tensions between Russia and the West weighed on market sentiment.
The Eurekahedge Japan Hedge Fund Index dropped 0.84%, with long/short equities managers in the region posting losses as the Tokyo Topix declined 0.72% during the month on the back of an appreciating yen. Asia ex-Japan investing hedge funds were down 0.24%, with managers focused on the Greater China region posting strong losses, declining by 3.47%. European managers were also in the red, down 0.34%, though managing to outperform underlying markets as the MSCI Europe Index declined 0.98% during the month. North American managers posted gains of 0.45% and outperformed the MSCI North America Index which was up 0.38% during the month. The Eurekahedge Latin America Hedge Fund Index posted the strongest gains, up 1.53% as Brazil’s Ibovespa climbing 7.13% in March on the prospects of a more pro-market economic policy taking shape in the country. Emerging market focused hedge funds also ended the month in positive territory, up 0.67%.