March was a good month and the first quarter of 2019 was promising, according to the April report from Eurekahedge.
The Eureka Hedge Fund Index gained 1.06% in March. This yields a first quarter return of 4.36%. As the report says, this is the strongest quarterly return since the global financial crisis. Close to two thirds (64.3%) of the hedge fund managers that Eurekahedge tracks earned positive returns in March, and close to one sixth (16.3%) generated gains in the double-digits.
Managers who used CTA/managed futures strategies were up 2.66% in March. Long/short equity hedge funds didn’t do so well, gaining just 0.53%. But long-short equity managers did well for the quarter, up 5.75% YTD. No strategic mandate was in the red for March, although arbitrage and distressed debt were both flat.
As to the reason CTA/managed futures strategies did so well in March, Eurekahedge attributes this to “the robust performance of the energy sector” that month. The report mentions in this connection OPEC’s production cut, and US sanctions against Venezuela. What it doesn’t mention was that on April 1 Moody’s Investor Services issued a snapshot of the Saudi Arabian state-owned oil company, Saudi Aramco, describing it as the most profitable business in the world.
The Eurekahedge Fixed Income Hedge Fund Index gained 0.66% in March. The report attributes this to the US Federal Reserve, which it credits with a “dovish stance [that] led to lower bond yields during the month, resulting in gains for the government and high-yield bond markets.”
Geography and Four Volatility Plays
Breaking it down geographically, managers who focused on Asia ex-Japan did best in March, gaining 2.04%. Among them, those with strategic mandates in Greater China did spectacularly well. North American managers came in a distant second, at 0.71%. The gains from Japan were modest: Latin America and Europe, where Brexit uncertainties persisted through the month, lost money.
The year-to-date returns broken down by geography look much like the March returns. Asia ex-Japan in the lead, North America second, Europe doing poorly. The striking difference is Latin America, which, despite its negative number for March, looks strong YTD.
The April report also discusses volatility-based strategies, referencing specifically the four CBOE Eurekahedge volatility indexes: for those managers who take a net long view on implied volatility; for those who take a net short view; for those who trade opportunistic (relative value) vol strategies; and for those who “seek to achieve capital appreciation during periods of extreme market stress” through a “tail risk” approach.
For March, the short vol approach took a beating (down more than 2%). The long vol approach was up, through only slightly (0.06%). The best performing of these strategies was the tail risk approach, up 0.28% on the month.
Looking at the same four strategies YTD: it is long vol that has taken the beating, down by 5.6%. Tail risk is also on the loss side. Relative value and short value have both gained YTD. Short vol is the standout.