The global hedge fund industry suffered its first monthly losses of 2013 in June, led by emerging markets and other areas of investment seen as carrying a greater risk, after US officials indicated they may ease off on market stimulus, according to industry analysis and consulting firm HFR.
The HFRI Fund Weighted Composite Index, a broad measure of the hedge fund industry, fell 1.3 percent last month, marking the first monthly decline after seven consecutive gains, HFR says in a press release. It’s also only the second drop in a 13-month period of gains for the industry on the back of generally positive market performance. Despite the drop in June, the index is up 3.6 percent so far this year.
The losses follow the US Federal Reserve’s indication it is considering ‘tapering’ its quantitative easing, or scaling back its program of buying $85 bn per month in bonds amid signs the US economy is improving. The Fed’s quantitative easing program is meant, in part, to boost housing and equities markets but the prospective downscaling triggered market losses worldwide. The announcement also triggered the selling of assets seen as carrying a higher risk, such as those linked to interest rates and those in emerging markets.
‘Risk-off sentiment dominated June hedge fund performance as investors and fund managers positioned for curtailment of stimulus efforts by the US Federal Reserve, resulting in increased volatility and pressuring emerging markets, interest rate-sensitive and commodity-focused funds,’ says Kenneth Heinz, president of HFR, in a press release. ‘While tactical positioning and effective short hedging mitigated a portion of the losses across these areas, June performance was significant in that the trends of the previous six months across most asset classes were reversed as bond yields posted a sharp increase.’
Losses are led by emerging markets, with the HFRI Emerging Markets: Asia ex-Japan Index plunging 5.7 percent in the month. The drop nearly wiped out the index’s year-to-date gain, leaving the increase since January at 0.9 percent. The HFRI Emerging Markets: Latin America Index dropped 5.4 percent in June while the index for Russia & Eastern Europe declined 2.8 percent. The HFRI Emerging Markets (Total) Index, which measures emerging markets overall, dropped 4 percent.
Declines are seen in all four main indexes that measure different hedge fund investment strategies, with the HFRI Macro (Total) Index falling 1.5 percent, the HFRI Equity Hedge (Total) Index dropping 1.4 percent, the HFRI Relative Value (Total) Index down 0.9 percent and the HFRI Event-Driven (Total) Index declining 1.2 percent.
