September was a good month for funds of funds all round, with the Eurekahedge indices returning upwards of 1% across almost all strategies and regions. The month saw a departure (positive) from August’s shallower returns, and a return to the more robust pre-August rising trend. The Eurekahedge Global Fund of Fund Index rose 1.5% for September (as compared to +0.8% in August). Even the region where funds of funds relatively underperformed – North America – saw a spike in its return gradient, rising 0.9% to August’s 0.5%.
Two key events dominated the market scene in September. First, the Federal Reserve hiked its funds rate by 25 basis points to 3.75% and also hinted at further hikes in the coming months, to stem inflationary pressures. This has had the effect of reversing the US treasury market rally seen in August, and consequently, fixed income fund of funds were the worst-performing among all strategies and across all regions, during September. The Eurekahedge fixed income fund of funds index returned a mere 0.7% for the month.
Although the above numbers show equity long/short and multi-strategy funds of funds as the consistent return drivers in the better performing regions, a comparison of funds of funds across all regions tells a slightly different story. September’s best returns were in fact generated by macro focused funds of funds, with the corresponding all regions Eurekahedge Index rising 2%. These funds of funds have benefited from the global trends of rising inflation and inflation risk on one hand and steady economic growth on the other. The indices for equity long/short and multi-strategy funds of funds, on the other hand, rose 1.7% and 1.5% respectively.
Going forward, inflationary pressures are looming on several of the regional investment horizons, particularly the US. While some of the regional bull runs seen during the month are sustainable by market fundamentals, and promise pockets of opportunities for funds of funds, initial October figures show returns in the negative territory, with the Eurekahedge global fund of funds Index tentatively down 1.5% .
Rajeev Baddepudi is hedge fund analyst with Eurekahedge based in Singapore