Crypto Hedge Fund Index Up A Massive 69% YTD: Eurekahedge

Key highlights for May 2019:

Q1 hedge fund letters, conference, scoops etc

• The Eurekahedge Hedge Fund Index was down 0.71% in May, bringing its year-to-date return to 4.32%. Roughly 15.0% of the hedge fund managers comprising the index have recorded double-digit gains over the first five months of the year.
• The global hedge fund industry AUM has grown by US$0.5 billion as of May 2019 year-to-date. Final Q1 2019 net outflows figure stood at US$46.4 billion, just under half of the investor redemptions totalling US$94.7 billion seen in the final quarter of 2018.
• The Eurekahedge Asia ex Japan Hedge Fund Index was up 5.51% year-to-date, supported by the recovering Asian equity markets throughout the first quarter of 2019. However, the return of the trade tension between the US and China posed as a headwind for fund managers focusing on the region. Investor redemptions from the mandate stood at US$4.2 billion over the first five months of the year.
• North American hedge fund managers were down 1.22% in May, as the region's equity markets slumped under the US-China trade talk breakdown. On a year-to-date basis, the Eurekahedge North American Hedge Fund Index was up 5.28%.
• The Eurekahedge CTA/Managed Futures Hedge Fund Index declined 0.43% in May, with mixed returns among its underlying regional mandates. Fund managers with long exposure to the energy sector suffered losses from the sharply falling oil prices which resulted from concerns over global economic slowdown. On the other hand, precious metals registered gains as the equity market volatility boosted demand for gold during the month. The strategic mandate has seen investor redemptions totalling US$10.6 billion year-to-date.
• Fund managers utilising AI/machine learning strategies ended May down 3.70%, registering their first monthly loss in 2019. On a year-to-date basis the Eurekahedge AI Hedge Fund Index was down 0.20%.
• The Eurekahedge ILS Advisers Index was down 0.84% in May, bringing its year-to-date loss to 1.10%. ILS hedge fund managers suffered considerable losses from the recent hurricane seasons in 2018 and 2017, during which the index was down 3.92% and 5.60% respectively. However, investor interest level has remained robust through the recent years, with an estimated US$18.9 billion of net allocations made into the ILS hedge fund space since the beginning of 2017.
• The Eurekahedge Crypto-Currency Hedge Fund Index rallied 33.74% in May, boosted by the rally in crypto assets which saw Bitcoin breaching the US$8,000 level for the first time since July last year. The index was up 68.79% as of May 2019 year-to-date, recovering most of the losses it suffered in 2018.

2019 Key Trends in Funds of Hedge Funds

The Eurekahedge Hedge Fund Index was down 0.71% in May, following four consecutive positive months since the beginning of the year. Hedge fund managers struggled to generate returns amidst the risk-off environment resulting from the re-escalation of the US-China trade war. The Trump administration's decision to raise tariffs on Chinese imports prompted the other side to launch retaliatory tariffs, leading to worsening global economic outlook which weighed on global equities during the month. The MSCI ACWI (Local) ended the month down 6.12%. On the other hand, the US 10-year treasury yield dipped to its lowest point in almost two years, as investors expect that the Fed will have to cut interest rates in near future. On a year-to-date basis, hedge fund managers are still up 4.32% as of May 2019.

Approximately 41.6% of the hedge fund managers tracked by Eurekahedge posted positive returns in May, and 15.0% were able to generate double-digit gains year-to-date. Returns were largely negative across regions, with Asia ex-Japan fund managers down 2.04% as the deteriorating trade relation between the US and China weighed on the region's equity market performance. Fund managers focusing on North America fared slightly better, ending the month down 1.22%. Both mandates had enjoyed strong Q1 performance on the back of robust economic growth and accommodative central bank policies, and are still up for the year. North American hedge funds have returned 5.28% year-to-date, slightly behind their Asia ex-Japan peers who were up 5.51% over the first five months of 2019.

May 2019 and April 2019 returns across regions

The figure below illustrates the year-to-date performance of hedge fund managers across regions. Despite the weak May performance of the global hedge fund industry, all of the regional mandates were still up for the year, with Asia ex-Japan leading the pack. On the other end, fund managers focusing on Japan have returned 1.38% year-to-date, trailing behind the other regional mandates.

2019 returns across regions

Mizuho-Eurekahedge Asset Weighted Index

The asset-weighted Mizuho-Eurekahedge Index - USD declined 1.33% in May, after ending 2018 down 4.30%. It should also be noted that the Mizuho-Eurekahedge Index is US dollar denominated, and during months of strong US dollar gains, the index results include the currency conversion loss for funds that are denominated in other currencies.

Most of the Mizuho-Eurekahedge indices posted negative returns in May, with the Mizuho-Eurekahedge Asia Pacific Index losing 2.60% over the month. In terms of year-to-date return, most of the Mizuho-Eurekahedge indices were in positive territory, with the exception of the Mizuho-Eurekahedge Multi Strategy Index - USD, which was down 1.00% over the first five months of the year. Emerging markets and long/short equities managers have generated the strongest returns of 4.02% and 3.15% respectively as of May 2019 year-to-date.

CBOE Eurekahedge Volatility Indexes

The CBOE Eurekahedge Volatility Indexes comprise four equally-weighted volatility indices - long volatility, short volatility, relative value and tail risk. The CBOE Eurekahedge Long Volatility Index is designed to track the performance of underlying hedge fund managers who take a net long view on implied volatility with a goal of positive absolute return. In contrast, the CBOE Eurekahedge Short Volatility Index tracks the performance of underlying hedge fund managers who take a net short view on implied volatility with a goal of positive absolute return. This strategy often involves the selling of options to take advantage of the discrepancies in current implied volatility versus expectations of subsequent implied or realised volatility. The CBOE Eurekahedge Relative Value Volatility Index on the other hand measures the performance of underlying hedge fund managers that trade relative value or opportunistic volatility strategies. Managers utilising this strategy can pursue long, short or neutral views on volatility with a goal of positive absolute return. Meanwhile, the CBOE Eurekahedge Tail Risk Index tracks the performance of underlying hedge fund managers that specifically seek to achieve capital appreciation during periods of extreme market stress.

Returns were mostly positive among the CBOE Eurekahedge indices, with the CBOE Eurekahedge Long Volatility Hedge Fund Index up 2.07% as market volatility spiked up as a result of the escalation of the international trade conflict, the CBOE VIX went up by 42.61% in May. In contrast, hedge fund managers utilising tail risk volatility strategies lost 7.11% during the month. On a year-to-date basis, tail risk volatility and long volatility hedge fund managers were down 8.95% and 5.54% respectively.

Summary monthly asset flow data since January 2013

Eurekahedge

Launched in 2001, Eurekahedge has a proven track record spanning over 16 years as the world's largest independent data provider and alternative research firm specialising in global hedge fund databases and research. Headquartered in Singapore with offices in New York and Philippines, the global expertise of our research team constantly adapts to industry changes and needs, allowing Eurekahedge to develop and offer a wide array of products and services coveted by institutional investors, family offices, accredited investors, qualified purchasers, financial institutions and media sources. In addition to market-leading hedge fund databases, Eurekahedge's other business functions include hedge fund research publications, due diligence services, investor services, analytical platforms and risk management tools.