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Continuing their lackadaisical performance of 2012, global hedge funds have delivered a below par 3.8 per cent return for the first four months of 2013. These returns compare poorly with the MSCI World Index, which has delivered a 11.9 per cent return for the period.
India-focused hedge funds, in particular, should be avoided, shows the Eurekahedge Hedge Fund Index of 2,404 funds.
These funds have posted a loss of 0.2 per cent for the January-April, 2013 period, whereas the BSE benchmark S&P Sensex gave a moderate return of 1.5 per cent, indicating that the hedging strategy has missed the mark.
In contrast, hedge funds targeted at Asia on average earned returns of 9 per cent. Funds targeted at India’s emerging market peers China (up 6.9 per cent) and Brazil (up 3.2 per cent) were also able to at least deliver a positive return. Japan-focused hedge funds are the clear winners of 2013 so far: they delivered an 18.5 per cent return for the first four months of the year.
Main drag
A closer analysis of hedge funds operating in India indicates that hedge funds with a long-short equity strategy have been the main drag on overall performance of hedge funds operating in the country.
Long-short equity strategy funds, which use leverage, derivatives and short positions in an attempt to maximizs total returns, regardless of market conditions – have shed 2 per cent in 2013 so far.
In contrast, both arbitrage funds and fixed income funds were up 2.2 per cent and 2.5 per cent, respectively, in the first four months of the year.
In the year 2012, hedge funds with a long-short equity strategy were the best performers in India, achieving a return of 15.2 per cent. Arbitrage funds earned 8.5 per cent, but fixed income funds did poorly, losing 0.7 per cent during the year.
Globally, large-size funds with a corpus of over $500 million were the best performers, achieving a return of around 4.3 per cent, compared to a 4.1 per cent return for medium-size ($100-500 million) and 3.6 per cent for small-size (less than $100 million) funds.
The best-performing category was distressed debt funds (6.7 per cent returns), followed by long-short equity (5.3 per cent) and event-driven (4 per cent) funds.
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