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June proves positive for hedge funds and gross invested levels increase

Wednesday, July 2, 2014

GAM Insight - Hedge Fund Performance Update - June 2014

Asset prices rallied in June across equities, bonds, credit and most commodities. Hedge funds performed positively with the HFRX Global Hedge Fund index up 0.9% for the month and each of the four main hedge fund strategies also posting gains, as measured by the respective HFRX strategy indices in US dollar terms.

Hedge funds increased their investment levels in June as markets normalised following the equity market rotations in March through to early May, according to GAM Portfolio Manager Anthony Lawler. “Hedge funds are generally bullish on the opportunity set and that is reflected in their gross exposure increases, while net market exposure remains stable. Equities and credit are hitting all-time highs in price terms in some regions, and many managers view this as an opportune time to express long and short ideas rather than simply being directionally long.”

We expect the current investment themes to continue into the second half of the year”, said Lawler. “Our view is positive given the supportive backdrop of global central bank liquidity and reasonable growth rates. Investors’ reach for yield continues to drive opportunities in relative value and credit, while the event driven strategy remains strongly supported by the volume of merger deals coming to market which is expected to continue. Within equities, we have seen managers adding to positions in Europe, Japan and the US. Finally, in traditional macro markets we are seeing opportunities as a result of differing country growth and policy paths, so managers are trading long sterling, long US dollar versus the yen and the euro, tactical longs in European and Japanese equities, and country-specific ideas in emerging markets such as long Brazilian interest rates where disappointing growth may result in rate cuts.”

At the half-year mark event driven was the top-performing strategy, followed by relative value and equity hedge strategies with year-to-date performance of 4.4%, 1.6% and 1.3% respectively, as measured by the HFRX strategy indices in US dollar terms. The global macro strategy was positive in June but remains the laggard in year-to-date performance terms (-0.7%) as managers largely wait for their themes to play out, said Lawler.

Source: GAM, Thomson Reuters, MSCI, Bloomberg