Rough June for hedge funds
08 July 2013
By Asia Asset Management
June was a volatile month across global capital markets. Rhetoric from the Fed on an earlier-than-expected tapering off of asset purchases resulted in a material sell-off across bonds, credit and equities in the month. US ten-year Treasuries sold off with yields increasing from 2.2% to 2.5%; the Barclays Global Aggregate Bond index was down 1.2%, while the MSCI World index fell 2.4%. Additionally, China-focused growth concerns came back to the fore in June. In particular, a large spike in interbank lending rates added to worries about whether growth targets can be achieved with lower credit availability. These uncertainties contributed to broad negative performances across emerging market debt and equities.
Against this difficult backdrop, June was the first negative performance month of the year for aggregate hedge funds, as measured by the HFRX Global Hedge Fund index. The month finished 1.4% lower, taking the year-to-date performance to 3.1%.
Anthony Lawler, portfolio manager at GAM, said: "June was a challenging month for investors. Most experienced some pain when markets reversed irrespective of whether their positioning was in bonds, credit, equities or other assets. Hedge funds were not immune to the reversals and most strategies gave back some of the year-to-date gains."
At the half-year mark, according to HFRX data, global macro/CTA managers are slightly negative on the year at -0.7%, while strategy level indices are positive for equity hedge (4.5%), event driven (7.1%) and relative value (1.3%).
Mr. Lawler added: "June was painful for many traders, but some high conviction views remain, maintaining risk exposures after month-end. For example, some managers continue to take exposure to equities in Japan, to possible continued weakness in emerging markets and related commodity currencies, and to continued broad US dollar strength."
Managers see this current period as a possible policy inflection point, continued Mr. Lawler: "There is talk that perhaps the Fed just signalled that global liquidity has hit its high watermark. If the US economic growth engine continues to gain traction, then we could see central banking quantitative easing activity slowly start to recede into the background as natural market forces drive the economy forward. If this inflection point talk proves accurate, we could be entering a period of good opportunities for global traders, as economies begin their respective multi-year recovery paths. But the Fed's actions remain data-dependent, and we should therefore expect some volatility on this path, even in the event it proves to be a turning point."
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