Hedge Funds Continue Upward Climb, With Event-Driven Funds Leading the Way

China-focused emerging market funds leading global returns, and are up a whopping 11.60% YTD.

As hedge funds post their seventh-consecutive month of positive performance, asset owners are following those numbers with dollars, according to the latest hedge fund performance and asset flow data from eVestment. Hedge funds were up 0.21% in May, pushing year-to-date (YTD) performance up to 3.20%.  Investors allocated $10.5 billion to hedge funds in May, bringing YTD totals up to $23.3 billion.

Performance was up broadly across most strategies, but the big surprise is in event-driven funds, where the 10 largest event-driven funds are outperforming all other segments of the industry so far this year. In every other strategy, even where performance is positive, the largest funds are underperforming their peers. Despite this, asset flows into event-driven funds have lagged other categories. “We have been really surprised to see little in the way of meaningful asset flows into event-driven strategies,” says Peter Laurelli, global head of research at eVestment. “Our sense is assets will come back later this year, but that’s obviously not a certainty.”

Macro strategies, on the other hand, have seen the largest funds underperform only to be rewarded with more allocations. Investors put $2.04 billion into Macro funds in May, bringing the YTD total up to $13.79 billion. Returns for macro funds were positive in May, up 0.27% percent and are up 1.28% YTD, however, the largest funds lag behind almost all other segments of the industry this year.

“We are starting to see investors shift assets into macro and out of managed futures funds,” Laurelli explains. “Investors had gone into managed futures as a diversifier, but the performance hasn’t been there. Macro has slightly better performance and can also be uncorrelated.”

The diversity thesis may also explain why investors are still putting money into commodity funds despite those strategies posting their fourth month of negative performance. Commodities funds were down 1.55% for May and are down 3.20% YTD, but saw $1.3 billion of assets flow into funds in May. Investors have put $3.63 billion into commodity funds YTD.

China funds lead global returns

Emerging markets also posted their fifth-consecutive month of gains, with China-focused funds leading the way. China funds were up 1.60% in May and are up a whopping 11.60% YTD. According to the data, almost 15% of reporting funds focused on China are outperforming the MSCI China benchmark, which is better than developed market funds are doing against their own benchmark.

HSBC’s most recent hedge fund performance report released on Monday also showed strong performance from China-focused funds. Greenwoods Asset Management’s Golden China Fund took the number two slot in the list, up 25.48% through June 9. Quam Asset Management’s China Focus Segregated Portfolio was right behind, ranking fourth and up 23.71% through June 9. Telligent Capital Management’s Greater China Fund also made the top six, returning 20.16% through May 31.

High double-digit performance hasn’t been enough to draw investor dollars for much of this year, however. Asset flows into emerging market funds have been largely flat to negative. But, China funds are starting to show signs of life— the majority of China-focused funds saw positive inflows in May, a trend not seen since 2015.


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