Funds of funds had a terrific run in November, confirming market sentiment about the technical correction witnessed in October (and consequently, a dip in returns) – that it is of a short-term nature. The lowered risk appetites seen in October were visibly buoyed by robust economic data, moderate inflation in the US and the Federal Reserve’s apparently diminishing concerns about rising inflation. Most Eurekahedge fund of funds indices gained upwards of 1% for the month, with some even breaking out of the 3% mark. The benchmark Eurekahedge fund of funds index returned 1.67% for the month.
The top revenue-earners for the month by strategy employed were CTA/managed futures funds of funds (+3%). Funds of funds allocating to commodities benefited from a significant uptrend in the prices of precious metals, especially gold, while those focusing on the futures markets gained from currency positions.
Long/short funds of funds also registered robust gains, with the corresponding Eurekahedge index rising 2.1%. Equity markets across the board soared.
On the other hand, Arbitrage funds of funds fared somewhat poorly over concerns of year-end redemptions and further dips in market volatility during the first half of the month. The Eurekahedge arbitrage fund of funds index returned just under 0.7% for the month.
Moving on to an analysis of industry performance by region, the Eurekahedge regional indices have all returned upwards of 1.4% for the month. More specifically, funds of funds allocating to the emerging markets registered the largest gains, rising a solid 3.3%. The main catalyst was a return of liquidity to and confidence in these markets.
Funds allocating to Asia-pacific were the next best performers and were up 2.5% for the month, clearly benefiting from the strong US economic data and Japan’s positive turn. In the light of the positive return drivers emanating from the US markets, North American funds of funds have also fared rather well during the month, posting healthy returns at 1.4%.
The liquidity-driven equity market rallies seen during the month are typical of the end of the year. The moderate stand of key central banks towards rising inflation is helping shape market expectations and risk appetites.
Rajeev Baddepudi is hedge fund analyst with Eurekahedge in Singapore