Hedge funds fell 0.50 per cent in April as global equity markets tumbled amid growing stagflation fears
Eurekahedge data from With Intelligence for April shows that the Eurekahedge Hedge Fund Index declined -0.50 per cent in April 2022, outperforming the S&P 500 which fell -8.80 per cent over the same period.
Global equities posted steep losses in April as the continuation of the Russia-Ukraine war, global monetary policy tightening and continued supply chain disruptions exacerbated by the lockdowns in China dampened market risk sentiment and fuelled stagflation fears.
The US consumer price index has remained persistently high over the recent months, hitting a 40-year high of 8.3 per cent in April, raising the probability that global central banks will push ahead with aggressive tightening despite the risks of slower economic growth. The Federal Reserve has hiked interest rates by 50bps in May, the sharpest increase since 2000 and signalled the possibility of further hikes in the coming months.
Over in Europe, returns were mostly negative among equity benchmarks in the region with the Euro Stoxx 50 down -2.55 per cent while the RTS Index gained 5.90 per cent after the Russian rouble recovered to a more than two-year high of 73.50 against the Euro, supported by capital controls which bans short selling and foreign players from selling shares in Russian companies without permission.
Inflation in the eurozone reached 7.5 per cent in April, driven largely by rising energy prices that have the potential to worsen in the coming months if Russia follows through on a plan to cut supplies to countries that refuse to pay for their energy supplies in roubles.
Returns were negative across geographic mandates in April, except for the Eastern Europe & Russia mandate which posted a return of 17.32 per cent while the Latin American mandate trailed behind their peers with a return of -3.41 per cent. Across strategies, the CTA/managed futures mandate performed the best with a return of 2.89 per cent while the long/short equities mandate trailed behind their peers with a return of -2.13 per cent.
Roughly 43.7 per cent of the underlying constituents of the Eurekahedge Hedge Fund Index posted positive returns in April, and 96.9 per cent of the hedge fund managers in the database were able to outperform the S&P 500.
Hedge fund managers were down 0.50 per cent in April, outperforming the tech-heavy NASDAQ and S&P 500 by 12.76 per cent and 8.30 per cent respectively. Around 96.9 per cent of global hedge funds have outperformed the S&P 500, while 43.7 per cent of them have generated positive returns in April. On a year-to-date basis, global hedge funds were down -1.60 per cent, outperforming the S&P 500 which returned -13.31 per cent over the same period.
On an asset-weighted basis, hedge funds were down 0.42 per cent in April, as captured by the Eurekahedge Asset Weighted Index – USD, slightly outperforming its equal-weighted counterpart by 0.08 per cent. On a year-to-date basis, the Eurekahedge Asset-Weighted Index – USD was down 0.78 per cent over the first four months of the year.
The ability of large size hedge funds to diversify their assets have paid off in this challenging period, Eurekahedge writes, as they have reported the smallest losses among their peers, with the billion dollar and large-size hedge funds losing -0.04 per cent and -0.27 per cent respectively, compared to the -0.50 per cent and -0.80 per cent loss of their medium and small-size counterparts. In terms of year-to-date returns, the Eurekahedge Billion Dollar Hedge Fund Index was up 0.57 per cent, outperforming their medium and small-size peers which posted losses of -1.76 per cent and -2.15 per cent respectively.
The Eurekahedge European Hedge Fund Index was down 0.29 per cent in April, outperforming the DAX Index by 1.91 per cent during the month. European equities reported smaller losses compared to their US counterparts, supported by strong corporate earnings in the region and the relatively less hawkish ECB monetary policy stance than was expected by the market. In terms of year-to-date return, European hedge funds were down 4.33 per cent as of April 2022, with around 40 per cent of them maintaining a positive performance over the first four months of the year.
The Eurekahedge North American Hedge Fund Index was down 1.66 per cent in April, outperforming the S&P 500 by 7.14 per cent during the month. In a bid to curb rising inflationary pressures, the Federal Reserve has raised their policy rate by 50bps in May and expects to conduct further rate hikes in the coming months, leading to increased bearish sentiment in the region. On a year-to-date basis, North American hedge funds were down -3.18 per cent, with its underlying long/short equities sub-mandate posting -6.88 per cent of losses over the first four months of the year.
The Eurekahedge CTA/Managed Futures Hedge Fund Index was up 2.89 per cent in April, posting its fifth consecutive month of positive performance and best five-month run since 2011, with an accumulated return of 10.13 per cent since end-December 2021.
Fund managers benefited from higher commodity prices particularly in energy and agriculture, driven by supply chain bottlenecks caused by the ongoing geopolitical conflict. On a year-to-date basis, CTA/managed futures managers were up 9.43 per cent over the first four months of 2022, with around a quarter of them generating a return more than 20 per cent.
The Eurekahedge Long/Short Equities Hedge Fund Index was down -2.13 per cent, bringing its year-to-date return to -5.78 per cent as of April 2022. The hawkish Federal Reserve, higher commodity prices and lockdowns in China have contributed to the weak performance of the global equity markets during the month. Around 34 per cent of long/short equities hedge funds have maintained a positive performance in April, while 10 per cent of them have generated a double-digit return in 2022.
Fund managers focusing on cryptocurrencies as represented by the Eurekahedge Crypto-Currency Hedge Fund Index declined 21.75 per cent in April, bringing their year-to-date return to -28.23 per cent.
Similar with other risk asset classes, the magnitude of market breakdown has also impacted the cryptocurrency market. Eurekahedge writes that bitcoin was down -18.01 per cent in April, and as at the time of writing was currently trading below USD30,000, down from its all-time high of around USD65,000.