India-focused hedge funds witnessed a turnaround in July, rising by 5.8 per cent. They managed to outperform the Indian benchmark, Sensex, which declined 1.2 per cent during the period.

In particular, commodity trading adviser (CTA)/managed futures hedge funds — which use futures contracts as part of their overall investment strategy — targeted at India, outperformed even global indices during the month, delivering a staggering 43 per cent return. India-focused CTA managed futures hedge funds are also among the best performers during the calendar year thus far, with a return of 37.4 per cent.

Year-to-date returns

Nevertheless, on the whole, India-focused hedge funds continue to be among the poorest performers in the global hedge fund industry this year, with a negative 3.1 per cent return for the first seven months of the calendar year.

Hedge funds with an arbitrage strategy witnessed a fall of 0.9 per cent in July, taking their 2013 losses to 2.6 per cent, in comparison to an 8.7 per cent gain in 2012. Fixed income hedge funds lost 7.8 per cent during the month and long-short equity funds focused on India by 0.8 per cent.

Globally, hedge funds have underperformed equity markets in 2013. Compared with a 12.7 per cent rise in the MSCI World Index in the January-July period, hedge funds have delivered an average return of 3.4 per cent for the year. Even the best-performing funds, such as those focused on Japan, rose by just 18.5 per cent in the seven-month period under review, compared with an over 27 per cent rise in the Nikkei 225.

The fortunes of the hedge funds could be changing though, if July is any indicator, since almost all hedge funds tracked by the Eurekahedge Hedge Fund Index of 2,404 funds achieved a positive return for the month.

Mid-sized funds lead

Looking at the global picture for the first seven months of the year, medium-sized funds with a corpus of $100-500 million have been the best performers. They delivered 4.3 per cent return in April-July, compared with a 3 per cent return from small-sized funds with a corpus of less than $100 million and 3.4 per cent return from hedge funds managing $0.5-1 billion. Super-sized funds with a billion-dollar corpus could also only achieve an average return of 3.6 per cent.