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The Eurekahedge Fund of Funds index was up a modest 0.7% for the month of March, based on 54.53% of the funds reporting their March 2007 returns as at 19 April. March began with a continued sell-off in all major equity markets. By 14 March, the S&P 500, the DJ Euro Stoxx 50 and the Nikkei 225 were all down 3-4% each. The resulting attractiveness of valuations all around and continued aggressive M&A activity during the second half of March lent support to a mid-month upward reversal in equities.

Global bond prices rallied strongly early in the month owing to lowered risk appetites, but eventually moved lower for March as risk aversion, as well as expectations of lower interest rates, diminished. While the FOMC meeting release announced that the target Fed Funds rate would remain unchanged, a later clarification from the Federal Reserve that inflationary risks remain its main focus pushed future yield expectations higher.

Energy markets had a difficult month as crude oil prices dropped to US$56 during the first half of the month, reflecting rising recessionary fears and the attendant drop in demand, but rose sharply to US$66 on the back of escalating geo-political tensions in the Middle-east.

Lastly, in the currency markets, the dollar weakened on mixed economic data while higher-yielding currencies rallied strongly. The euro, in particular, strengthened to reach multi-year highs on the back of positive economic data emanating from the Euro-zone and hawkish comments from the ECB. Recovery in the yen, however, could not be sustained, given the return of more stable market conditions, falling US bond prices and a resurgence of yen-funded carry trade transactions.

The month's robust pace of M&A deal flow (nearly USD500bn in announced deals), with attractive valuations and bottom trawling private equity firms, not only played catalyst to the upswing in equity
markets but also helped funds allocating to event driven managers post the best returns for the month (+1.1%).

Arbitrage plays returned a healthy 1%, while allocations to equity long/short strategies also posted modest gains (+0.6%), as hedge funds profited from both their long and short books during the month's see-sawing markets.

Most regional funds of funds had a good run in March, posting returns close to or upwards of 1%. On the lower end of this spectrum were funds of funds targeting North America, where choppy markets translated into modest gains on average (+0.7%).

European funds of funds on the other hand, posted the best returns among all regions for the month (+1.1%). These funds benefited from a stronger recovery in the region's markets, owing to robust Euro-zone economic data and a hawkish European Central Bank (ECB).

Funds of funds allocating to Asia-Pacific, whose returns were largely flat (-0.1%), were the
exception for the month.

Rajeev Baddepudi is hedge fund analyst with Eurekahedge in Singapore

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