Hedge funds posted excellent returns in January on the back of rising risk appetite and rallying equity markets globally. The Eurekahedge Hedge Fund Index was up 1.98%1 during the month, while the MSCI World Index2 gained 4.66%.
Key takeaways for the month of January 2013:
- 80% of hedge funds reported positive performance in January, compared to the 2012 monthly average of 60%
- Asia ex-Japan and Eastern Europe & Russia hedge funds outperformed underlying markets, up by 5.03% and 7.67% respectively
- Distressed debt hedge funds gained 3.47% in January; delivering the strongest results among the various strategies for 6 consecutive months with gains of 14% over this period
- Japanese hedge funds witnessed the strongest January return on record
- Relative value funds continued their winning streak into the 8th month with gains of 1.12% in January
- The asset-weighted Mizuho-Eurekahedge Asia ex-Japan Long Short Equities Index was up 4.64% during the month
- CTA/managed futures funds gained 1.69% in January – more than their annual 2012 return
Taking the cue from performance end-December, markets continued their upward trajectory through January. Markets started trending after US leaders reached an agreement to avert the 'fiscal cliff' and were further supported by positive macro-economic data. Concerns of a global slowdown waned in the wake of upbeat news from Europe, the US and China while corporate earnings added greater impetus to the rallies.
Hedge funds across all regions posted positive returns for the month with Emerging Europe and Asian hedge funds leading the way. The Eurekahedge Eastern Europe & Russia Hedge Fund Index was up 7.67%, with funds that had exposure to the power and utilities sectors posting double-digit gains. These returns point to substantial outperformance as the RTS Stock Index gained 5.99% while the MSCI Eastern Europe Index3 was up 2.95%.
Asia ex-Japan funds also outperformed the broad Asian market indices; gaining 5.03% during the month while the MSCI Asia Pacific ex-Japan Index was up 3.02%. Top performing funds reported gains from the rallying equities, the power sector and healthy IPO activity in the region. Exposure to China was also profitable for most Asian managers – 4 out of the top 10 performing funds4 for January employed a Greater China regional mandate.
All strategic mandates posted positive returns for January with distressed debt funds delivering the strongest returns. Among the various hedge fund strategies, distressed debt has been the best performing for 6 consecutive months, gaining 14% since August 2012. The strong rebound in risk appetite since 2H 2012 and positive developments in Europe have helped to drive up the high yield and distressed debt sector – the BofA Merrill Lynch High Yield Index5 was up 1.63% in January. Among other strategies, managers investing in equities delivered the strongest returns as long/short equity managers gained 2.77% and event driven hedge funds posted returns of 1.88% during the month. CTA/managed futures funds also started the year with healthy returns, posting 1.69% in January as capital moved away from bond havens and into the stocks and commodities markets.
1 Based on 21.33% of funds which have reported January 2013 returns as at 7 February 2013
2 MSCI AC World Index All Core (USD)
3 MSCI Emerging Eastern Europe Index IMI (Local Currency)
4 Based on 20.80% of funds which have reported January 2013 returns as at 7 February 2013
5 Bank of America Merrill Lynch US High Yield Master II Index (Total Return Index, in Local Currency)