After the robust returns seen in the past few months, markets and investors paused for a breather in February, and this was reflected in the performance of the Eurekahedge Fund of Funds Index (up 0.4%).
The month saw continued investor enthusiasm in the emerging markets, helping long/short funds of funds allocating to these regions post the healthiest gains for the month. The Eurekahedge emerging market long/short fund of funds index rose 2.2%, while the broader Eurekahedge emerging market fund of funds index rose 1.9%.
In Europe, another of the better-performing regions for funds of funds during February, equities (up 2%) were a key contributor to the month’s rise (1.5%). European multi-strategy funds of funds did particularly well during the month, clearly benefiting from the positive environment for conventional strategies – positive corporate and macro-economic data, stable credit markets, and healthy deal flow. Consequently, European multi-strategy funds of funds returned over 1.6% on average.
Asia proved the least profitable region for funds of funds during the month – the Eurekahedge Asia Pacific fund of funds index was down 1%, due tp lower risk appetites in key markets such as Japan and Korea.
On the strategies front, fixed income funds of funds were the best performers for the month. They posted returns close to 1% on the strength of a rising interest rate environment, and new issues and heightened activity in the convertibles space. Market neutral strategies such as relative value and arbitrage also fared rather well amidst the month’s flat markets, with returns at 0.8% and 0.7% respectively. The commodity markets experienced significant corrections during February. CTA funds turned in the weakest performance for the month among all fund of funds strategies, posting negative returns of 0.7%. Also, concerns over rising short-term rates and the flattening yield curve resulted in a nearly flat (0.2%) month for macro funds of funds.
Funds of funds allocating to Asia and North America had a flat to negative month, while the liquidity-fuelled movements in the emerging markets continue to be a key driver of returns
Rajeev Baddepudi is with Eurekahedge in Singapore