Hedge funds increase short exposure
Aggregate hedge fund performance was negative at -0.35% in a volatile July, making it the industry’s fourth month of losses in 2014. This dropped year-to-date returns to 2.62%, according to eVestment.
There was second consecutive month rise of short exposure heading into July. Median short exposure had been near its five-year low through much of 2013, but has since risen to its highest level since February 2010.
With net exposure near 50% long for most of 2014, it is apparent why long-short equity strategies have lagged the S&P 500. However, with major global indices falling, relative returns from long-short equity are beginning to appear more appealing.
Activist strategies declined in July, falling 0.88%. The group’s volatile returns have left them only slightly ahead of the aggregate of all hedge funds in 2014, returning 2.98% for the year.
A sell off in high-yield markets seemed to negatively impact directional credit strategies. Credit strategies had their first negative month since August 2013, declining 0.64%. Relative value credit managed to perform well, rising 0.22% in July.
Macro funds fell 0.75% bringing returns back to nearly flat for the year at 0.12%. Larger macro strategies underperformed during the month, falling an average of 1.10%. The same was true for managed futures strategies as large funds declined 1.91% in July and are down 0.13% for 2014.
Options-volatility strategies posted above average declines in July, hurt by the sharp uptick of volatility during the month. This is further evidence the group’s industry leading H1 performance was due to strategy aligned to a pervasive low-volatility environment.
Commodity-focused strategies produced the best aggregate returns of any major market segment in July despite large price declines across the commodity spectrum. However, the group’s dispersion of returns during the month was far greater than any other market segment.
Emerging market hedge funds posted positive returns despite large losses coming from funds targeting Eastern Europe. Gains came from rebounding Middle East-focused funds and those with exposure to China.
There was second consecutive month rise of short exposure heading into July. Median short exposure had been near its five-year low through much of 2013, but has since risen to its highest level since February 2010.
With net exposure near 50% long for most of 2014, it is apparent why long-short equity strategies have lagged the S&P 500. However, with major global indices falling, relative returns from long-short equity are beginning to appear more appealing.
Activist strategies declined in July, falling 0.88%. The group’s volatile returns have left them only slightly ahead of the aggregate of all hedge funds in 2014, returning 2.98% for the year.
A sell off in high-yield markets seemed to negatively impact directional credit strategies. Credit strategies had their first negative month since August 2013, declining 0.64%. Relative value credit managed to perform well, rising 0.22% in July.
Macro funds fell 0.75% bringing returns back to nearly flat for the year at 0.12%. Larger macro strategies underperformed during the month, falling an average of 1.10%. The same was true for managed futures strategies as large funds declined 1.91% in July and are down 0.13% for 2014.
Options-volatility strategies posted above average declines in July, hurt by the sharp uptick of volatility during the month. This is further evidence the group’s industry leading H1 performance was due to strategy aligned to a pervasive low-volatility environment.
Commodity-focused strategies produced the best aggregate returns of any major market segment in July despite large price declines across the commodity spectrum. However, the group’s dispersion of returns during the month was far greater than any other market segment.
Emerging market hedge funds posted positive returns despite large losses coming from funds targeting Eastern Europe. Gains came from rebounding Middle East-focused funds and those with exposure to China.
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