Hedge fund news: Emerging markets post strong gains

The early months of 2016 saw the strongest performance of emerging markets since May 2009, and it has been the most positive hedge fund news for this season. The sector even surpassed the standings of equity and commodity markets, according to data published by Hedge Fund Research. They have reached an index of +6.9% for the month, offsetting severe downfall from January and bringing YTD performance to +0.8 per cent.

Amid this recovery, some investors want to know if it is better to go for EM hedge funds, or Emerging Market mutual funds? While the latter invests only in stocks and bonds, hedge funds can offer exposure to more sophisticated investments, such as real estate, currencies and derivatives, commodities, and even leverage – which is basically about investing with borrowed money.

Many investors are EM hedge funds’ higher returns, but increased risk potential may also challenge them along the way. This is where asset servicing firms come in. For example, hedge funds are typically not as liquid as mutual funds; hence selling of shares becomes a more complex process to accomplish. If not executed properly, their strategies could even lead to significant losses. Third party services could definitely provided assistance in applying the best practices—at the right moment.

According to a report by HedgeWeek, hedge fund strategies with exposure to global equities produced strong gains for the month. Fundamental strategies led Equity Hedge (EH) sub-strategy performance, HFRI EH: Fundamental Growth Index gaining +4.7 per cent, while the HFRI EH: Fundamental Value Index added +3.6 per cent.

Fixed income-based Relative Value Arbitrage (RVA) strategies also spurred the growth of EM hedge funds, as led by funds with exposure to corporate credit and energy infrastructure. Also qualifying as the best strategies used for this quarter are the Event Driven (ED) strategies — led by the HFRI ED: Special Situations Index, which added +4.0 per cent, while the HFRI ED: Activist Index gained +3.1 per cent.

For this period, the top-performing emerging markets include Latin America, Emerging Asia and Russia. The HFRI EM: Latin America Index is up by +14.5 per cent—its best performance since December 1999. Similarly, the HFRI EM: Asia ex-Japan Index increased by +6.8 per cent, and the HFRI EM: Russia/Eastern Europe Index climbed up by +6.7 per cent in March, bringing YTD performance to +6.8 per cent.

With even more markets emerging across the globe, the hedge fund news for the rest of the year will surely be marked by even more stories of growth. Prospects are particularly good for funds that make use of third-party asset servicing to handle middle and back office functions.

Leo Aranas is an online writer and blogger.