February witnessed diverging trends among global markets with US and European indices finishing with contrasting results. Risk aversion increased mid-month and the S&P dropped below the 1500 mark in the third week of February as developments from Europe effected confidence globally. Economic contraction in Europe along with political uncertainty in Spain and Italy dampened some of the bullishness across the board. Although North American bourses rebounded at month-end to finish in the black, European indices finished with losses.
Managers across all major hedge fund regions posted positive returns, while Eastern European hedge funds finished the month with losses. Asian hedge funds provided the strongest returns in February â€“ Japanese managers were up 1.80% as underlying markets continued to rally, although most of the gain was made on the last day of the month. The promise of Prime Minister Abeâ€™s policies have delivered strong gains to the Japanese market and the momentum looks set to continue for awhile. Certainly Mr. Abe seems convinced of this as he reflected at the CSIS forum that â€œJapan is backâ€Â and the market is following the flow. The Eurekahedge Japan Hedge Fund Index has climbed to its historical high, crossing the 200 point marking and gained 10.50% over the last three months; making it the strongest 3-months on record for the index.
Asia ex-Japan managers also closed the month with gains of 0.80%, outperforming underlying equity markets which finished the month with an increase of 0.73%3. Long/short equity and event driven funds delivered the strongest returns during the month, up by 1.23% and 1.88% respectively.
European hedge funds also posted positive returns of 0.54% for the month, outperforming underlying markets by more than 3%. European markets declined as the debt issues once again came to the fore - driven primarily by the results of Italian elections. Long/short equity and European macro managers reported gains for the months. North American managers continued to make hay as the markets shrugged off European concerns amid a slew of positive economic data.
Most strategies delivered positive returns for the month with distressed debt and event driven hedge funds once again posting the strongest returns, albeit more muted than the previous two months. Distressed debt funds were up 0.71%, driven primarily by North America investing managers who gained 1.67%. European distressed debt funds dipped 0.2%, posting their first loss in nine-months â€“ the BofA Merrill Lynch High Yield Index4 was up 0.21% in February.
CTA/managed futures funds posted the lowest returns, down 1.23% driven primarily by currency and commodity price movements. Long term trend-following strategies reported losses from currency positions as the Euroâ€™s trend of gains reversed during the month. Similarly the reversing trends in energy prices also added losses for the managers while metal and agricultural prices also declined during the month. Managers investing in equity index futures reported some gains during February while some short-term systematic funds were also in the black.