New York (HedgeCo.Net) – Hedge funds outperformed underlying markets in September with the Eurekahedge Hedge Fund Index returning a flat 0% while the MSCI World Index finished the month down 1.86%. On a year-to-date basis, hedge funds are up 3.87%, falling just slightly behind underlying markets as the MSCI World Index returned 3.99% over the same period.
Key takeaways for the month of September 2014:
· Redemption pressure builds up in hedge funds following three consecutive months of net asset outflows as investors withdrew US$13.3 billion from global hedge funds in Q3 2014.
· CTA/managed futures funds reported the biggest gain of 2.47% in September, bringing their year-to-date returns up to 6.54%, the highest out of all strategic mandates.
· Japanese hedge funds were the only developed country mandate to post a gain during the month, reporting their fifth consecutive month of gains, beating the benchmark Nikkei 225 index by almost 3.5% year-to-date.
· Latin American managers suffered losses of 2.03% during the month, though outperforming the MSCI Latin America Index which fell 7.74%.
· India focused hedge funds posted their eighth consecutive month of gains, up 2.62% in September and 30.88% year-to-date.
· Eastern Europe and Russia investing funds were down 4.08% in September, and down 11.57% year-to-date – the worst performer among all regional mandates.
· Distressed debt strategies posted a loss of 2.24% in September, their biggest monthly loss in the past three years.
September saw a sharp rise in investor risk aversion, resulting in a corresponding flight to safe assets. The CBOE VIX Index; a measure of investor fear, rose 34.90% to 16.31 during the month. Divergence in economic policies between the major central banks drove much of the currency trends for September, with the US dollar being the biggest winner. The strong dollar also put heavy pressure on commodity prices and driving down energy prices. CTA/managed futures managers posted the largest gain out of all strategic mandates at 2.47% from their exposure to short energy and long US dollar positions.
Arbitrage and macro strategies also posted positive returns with gains of 0.36% and 0.24% respectively. On the other hand, fixed income as an asset class was hit hard by expectations of interest rate hikes. Bonds across all categories saw a fall in prices, with junk bonds seeing the biggest sell-off. Distressed debt strategies lost 2.24% while the Eurekahedge Fixed Income Hedge Fund Index fell 0.60%, their biggest monthly loss in 2014 so far.
Long/short equities also reported losses of 0.96%, coming under pressure due to global equities as a whole retreating in September. The protests in Hong Kong towards the end of the month weighed in on investor sentiment, adding further selling pressure to equity markets which were already jittery at the prospect of rising rates.