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India-focused hedge funds battered in August, see worst month since financial crisis

06 September, 2013

India focused-hedge funds, which recorded stellar returns in 2012 and have seen their fortunes turn around this year, experienced more pain last month with early estimates showing August could go down as the second-worst month in last nine years, data collated by financial services consultancy eVestment show.

Returns from India sank 16.67 per cent in August, the poorest performance among key emerging markets and regional blocks. This was the poorest performance since the carnage at the peak of the financial crisis. Part of this can be traced to the sharp fall in the value of rupee against the US dollar.

“Emerging market funds underperformed their developed market peers again in August with funds targeting India having an exceptionally difficult month,” said eVestment in a research note. India has seen negative returns of 24.57 per cent in the last three months and for the January-August period, the decline in performance is pegged still higher at 29.67 per cent.

In contrast, India was one of the best performing markets last year with overall returns during 2012 pegged at 18.43 per cent against 8.69 per cent for the developed markets and 12.6 per cent for emerging markets as a whole.

However, the negative returns in the country last month also possibly led to the poor returns for the rest of emerging markets which saw 1.69 per cent dip in returns in the same month, despite returns from China and Brazil growing 1.7 per cent and 1.3 per cent, respectively.

Among other markets, Emerging Europe recorded 2.65 per cent decline and Africa and Middle East clocked negative returns of 2.83 per cent. Developed markets clocked 0.26 per cent decline, as per eVestment.

“Funds investing in the Middle East and Africa have been one of the best performing universes by region and relative to the overall industry in both 2013 and 2012, but the group took a hit in August with the situation in Egypt and now Syria adding to market volatility in the region. Funds investing in Russia and emerging Europe also appeared to feel the impact of the growing conflict,” said eVestment.

Overall, hedge funds fell an average of 0.23 per cent in August and returned an average of 4.3 per cent through the first eight months of 2013. On an annualised basis the industry is on pace to return 7.5 per cent in the current calendar year.

According to eVestment, equity strategies appeared well positioned for the developed market swoon in August with long/short equity strategies posting their largest outperformance of the S&P 500 TR since October 2010 when the index fell over 4 per cent.

Credit strategies also appeared to have increasingly adjusted their exposure to account for rising rates prior to or during August. Both directional (long/short individual credit exposure) and relative value (position of one credit relative to another) were able to be among the best performing hedge fund groups in August.

Commodity focused strategies benefited from a surge in global commodity prices, led by both industrial and precious metals, particularly silver. Despite the rise in commodities, managed futures funds were relatively flat, though they were able to post their first positive month in the last four.

Macro strategies were again negative during the month and August losses put the universe back in negative territory for the year. With the group’s annualised return of -0.2 per cent 2013 through August, macro strategies are on pace to return an average of 0.002 per cent over the last three years.

Both systematic and discretionary strategies posted losses in August; however, funds relying on quantitative models for position generation are underperforming for the second consecutive year. An environment where sovereign policy and intervention have had a large influence on both absolute and relative pricing across multiple markets has proven very difficult for the systematic approach, said eVestment.

(Edited by Joby Puthuparampil Johnson)


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India-focused hedge funds battered in August, see worst month since financial crisis

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