Hedge funds climb in April as Chinese, EM equities surge

Hedge funds posted gains in April as regional equity and currency markets across China, Russia, Brazil and the Middle East posted sharp gains.

Volume surged on the Shanghai/Hong Kong Connect program to a daily record driving Chinese A-shares to a gain of over 18 per cent for the month. The HFRI Fund Weighted Composite Index® gained +0.8 per cent in April, extending 2015 gains, with contributions from exposure to Emerging Markets and Energy, as reported today by HFR®, the established global leader in the indexation, analysis and research of the global hedge fund industry.

April performance was led by the HFRI Emerging Markets Index, which advanced +7.0 per cent,  the best monthly return since May 2009. All EM regions posted gains, led by Russia and Emerging Asia, with the HFRI EM: Russia/Eastern Europe Index advancing +10.8 per cent for the month, benefitting from the strong recovery in the Russian Rouble, as well as regional Russian equity markets.  The HFRI EM: Asia ex-Japan Index climbed +10.5 per cent,  also the best performance since May 2009, while the HFRI China Index posted a gain of +13.0 per cent,  the highest return since Index inception in 2008. Hedge funds investing in other Emerging Markets also posted strong gains, as the HFRI EM: Latin America Index gained +5.9 per cent,  while the HFRI MENA Index advanced +3.6 percent.

Hedge fund strategy performance was led by the HFRI Equity Hedge Index, which gained +2.0 per cent for the month. Equity Hedge gains were led by exposure to recovering growth equities, with the HFRI Fundamental Growth Index up +4.0 per cent for the month, the best monthly performance since October 2011. Energy and Fundamental Value strategies also posted gains, with these HFRI Indices advancing +3.9 and +2.0 per cent,  respectively.

Fixed income-based Relative Value Arbitrage strategies also posted gains, as US and European yields rose and high yield credit tightened, with the HFRI Relative Value Arbitrage Index advancing +1.4 percent. RV gains were led by Credit Multi-Strategy, Convertible Arbitrage and Yield Alternative sub-strategies, with these gaining +2.4, +2.1 and +1.9 per cent,  respectively, in April.

Event Driven hedge funds also advanced for the month as deal volume accelerated with
transaction announcements in Kraft/Heinz and Teva/Mylan, as well as the announcement of a transaction involving GE, Blackstone & Wells Fargo. The HFRI Event Driven Index gained +1.2 per cent,  with ED sub-strategy performance led by the HFRI ED: Activist Index gain of +1.9 per cent and the HFRI ED: Special Situations Index gain of +1.4 percent.

Partially offsetting these, Macro hedge funds posted declines in April, paring strong 1Q15 gains, as models re-calibrated portfolio exposures as a result of Oil and Currency reversals. The HFRI Macro Index declined -1.2 per cent,  reducing the YTD gain to +1.9 percent. Macro sub-strategy declines were led by quantitative, trend-following CTA exposures, with the HFRI Macro: Systematic Diversified/CTA Index declining -2.2 per cent for the month, paring the YTD gain for the Index to +2.4 percent.

“The drivers of April HFRI performance shifted significantly from the exposure factors which drove gains in recent months, as strategies which had been lagging, including Emerging Markets and Energy, reversed to lead performance, while trend-following CTA and Macro multi-strategy exposures declined, paring recent gains,” says Kenneth J Heinz, President of HFR. “The surge in Chinese equities provided a tailwind to hedge fund performance in April, underscoring not only the growth in significance and sophistication of the Asian hedge fund industry, but also the speed and fluidity at which the drivers of global performance can evolve.  Opportunistic hedge funds which are tactically positioned across a broad spectrum of exposures, including Emerging Markets, Energy, Oil, Currency, Shareholder Activist and interest rate sensitive strategies, are likely to drive industry performance gains and asset growth through mid-year 2015.”

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