EM hedgies, Asian quants struggle through June

Emerging market hedge funds, particularly those focused on China, had a volatile month of trading last month, with general market consensus indicating that there are more bumps on the horizon.

The Eurkeahedge Greater China Hedge Fund Index is down -5.19% for June, based on strategies that reported last month’s returns as of early this week, while the data provider’s emerging markets index was down -2.94%. By comparison, Japanese managers had a small gain of 0.15%.

The global market turmoil – the most volatile so far this year and triggered by indications of an end to quantitative easing in the US and slowing growth in China – ends a run of good performance by Asia ex-Japan and Japan hedge funds in the past several months.

Emerging market hedge funds "appear to have lost money in June", according to a preliminary report by fund of fund firm FRM, while Asian quants "continue to give back some of their very strong returns from the start of 2013".

Last month’s market movements bolster the old adage which advises “sell and May and go away”, although not an option for hedge funds which need to trade.

Large global managers have turned in mixed results, with funds by Third Point, York Capital and Greenlight Capital reportedly posting small losses in June. Meanwhile, the flagship funds of Citadel, Odey Asset Management and Chilton Investment are said to have made single-digit performance gains, helped by with short positions. 

“June might be a harbinger of a choppy summer for markets,” predicts FRM. Among the contributing factors that the fund of funds manager foresees is continued market weakness in Europe, due in part to its vulnerability to events in the US.

FRM sees June as being a “very poor month for global macro managers” – given losses in managed futures and trading strategies – as well as for emerging markets strategies, “which were unable to trade the large swings in EM equities and FX”.

“Correlations across all regions noticeably picked up”, FRM notes, indicating that it is becoming more difficult for managers to generate returns that are not strongly linked to markets.

Even short-term, momentum-driven strategies, such as quant – which are regarded as being least correlated to the market – have had mixed results, according to FRM. 

One example is BlueCrest Capital Management’s $16 billion BlueTrend fund, which reportedly lost  -9.48% in June and is down -10% for the first six months of the year. Since its launch in 2004, it has not had a negative year of performance.