EM Hedge Funds Surge Ahead: HFR
Posted by Colin Lambert. Last updated: June 4, 2021
A new report from Hedge Fund Research (HFR) reveals that emerging markets hedge funds, led by funds investing in China, India and the Middle East extended their 2020 surge into 2021 as capital reached a new record. HFR says performance was driven by gains in EM regional equity markets and surging cryptocurrencies.
The HFRI Emerging Markets (Total) Index gained 5.9 percent year-to-date through April 2021, led by the HFRI Emerging Markets: India Index, which surged 11.5 percent and the HFRI Emerging Markets: MENA Index which jumped 8.0 percent. Total EM hedge fund assets increased to a record of $264.8 billion as at the end of the first quarter of 2021, an increase of over $8.0 billion from the prior quarter.
While EM hedge fund performance was led by India and MENA, other EM regions posted strong performance as well, accelerating the recovery from large Q1 2020 declines. The HFRI EM: China Index gained 7.3 percent year-to-date for 2021 through April, topping the performance of the broad Chinese equity indices.
Additionally, hedge funds across EM regions, including Korea, Russia, China and the Middle East (as well as Japan), have become increasingly active in cryptocurrency trading, and the HFR Cryptocurrency Index extended its 2020 rise to rocket +229 percent to the end of April as many cryptocurrencies reached record levels.
The HFRI EM: Russia/Eastern Europe Index gained 7.0 percent through April, matching the performance of Russian equities over the first four months of the year. The HFRI EM: Latin America Index posted a narrow loss of 0.9 percent, the lone EM regional index to decline.
The investable HFRI 500 Fund Weighted Composite Index has gained +7.4 percent to the end of April, the strongest start to a year since index inception.
Total capital invested in Asian hedge funds increased to a new record, ending the first quarter with $132.6 billion AUM, while the HFRI Japan Index gained 3.7 percent in the first quarter.
“As the global economy begins to emerge from the coronavirus pandemic quarantine, strong, powerful hedge fund industry performance and growth trends have dominated early 2021 with emerging markets and Asian hedge funds driving these trends with exposures across commodities, regional equities, fixed income, currencies and cryptocurrencies,” says Kenneth Heinz, president of HFR. “While total hedge fund capital in emerging markets and Asian regions respectively and concurrently reached new record levels, expectations for acceleration in growth are continuing to increase as institutions around the world position for the opportunity-rich, post-pandemic financial market environment, with opportunities not only in Event Driven and Macro strategies, but also in new exposures and risks, including cryptocurrencies, commodity-linked inflation/interest rate sensitivity, SPACS/ M&A and supply chain/semiconductor shortage trades.
“Specialised Asian and EM hedge funds which have positioned for and demonstrated performance generation capabilities in these areas are likely to lead industry growth and expansion in coming quarters,” he adds.