China, Japan hedge funds lag as India surges

Hedge funds globally performed strongly in June on an aggregate basis, adding to respectable first-half returns. That said, China- and Japan-focused strategies posted losses in the year to end-June, while Indian funds surged.

Japan funds posted a 3% return in June, paring loses in the first four months to end the first half down 0.89%, according to Hedge Fund Research (HFR). After returning 15.89% in 2013, China funds lost 1.46% last month for a first-half decline of 3.87%, by eVestment figures.

India strategies were the star performers, gaining 4.16% in June and 28.61% in the first half after falling 7.75% last year, reported eVestment.

“China’s PMI data showed improvement in manufacturing activity while Indian equity markets continued to rally with the post election market euphoria still continuing unabated,” Eurekahedge said in its latest report.

“In Japan, the GPIF [Government Pension Investment Fund] has signalled a planned increase in its allocations to domestic equities, a move which is likely to see investors buy back into their bullish bets on the Nikkei.”

Asia ex-Japan emerging market funds overall returned 1.66% in June and 3.31% in the first half, but Asia including Japan strategies lost 0.36% in the first half, dragged down by the latter, reported HFR.

EM strategies were driven by exposure to Russia and India in June, but funds focused on the Middle East and Africa posted their first big declines in a year last month, said eVestment.

Globally strategies rose 1.45% in June and year-to-date 3.18%, according to the Eurekahedge Hedge Fund Index.

Moreover, June was the third consecutive month of positive returns, with the industry as a whole gaining 1.14% in June and 3.08% in the first half, according to eVestment. However, the data provider forecast full-year performance of 6.26% based on first-half results, which would lag returns in both 2012 and 2013. Eurekahedge and HFR did not issue forecasts.

Strategy-wise, equity hedge was the top performer last month, gaining 1.73% and 3.32% for the first half. Event driven and relative value also did respectably, gaining 1.27% and 1.02% in June, taking them to a rise of 4.26% and 4.84% in the first half, respectively, according to HFR. Macro strategies trailed the pack, returning 0.80% in June and 1.09% in the first half.

Of equity hedge sub-strategies, energy and basic materials performed best, posting gains of 3.81% last month and 11.36% in the first half, while multi-strategy performed best among event-driven strategies, returning 2.46% and 4.62% for the same periods. The best performing relative value sub-strategy was yield alternative, which delivered 1.96% in June and 9.72% in the first half.

Hedge funds posted gains of $40 billion and attracted $67 billion in net asset flows in year to June 30, Eurekahedge reported.

“Hedge fund performance gains from 2013 extended through the first half of 2014 despite minimal overall contribution to HFRI from macro, which comprise approximately 23% of all hedge fund strategies,” said Kenneth Heinz, president of HFR.

“With the recent collapse of implied volatilities across asset classes, there is a market opportunity in volatility positive strategies, including macro and CTA [commodity trading advisers] strategies,” he added.

In the first quarter, there were 289 new hedge fund launches, up from 244 in the preceding quarter, with equity hedge and event driven strategies leading the pack, according to HFR.