Emerging markets hedge funds multiply even as overall value declines by $3.7 bn in quarter amid slower performance
The number of hedge funds focusing on emerging markets rose to a record high in the second quarter of this year as investors increasingly sought fundamental growth strategies, according to analysts at Hedge Fund Research.
Emerging markets hedge funds increased to a total of 1,073 funds in the three months through the end of June, a rise of 3.5 percent on a year earlier, states a report by the hedge fund analysis and indexation firm.
Funds focusing on emerging markets such as Brazil, India and China now total 14 percent of all hedge funds.
At the same time, the total value of funds focused on emerging markets declined by 3 percent, or $3.7 bn, from the all-time record set in the first quarter of the year to $123.5 bn as of the end of June, HFR says.
The drop came as the HFR Emerging Markets Index declined 6.05 percent in the quarter and investors withdrew a net $256 mn even as new hedge funds were created to target emerging markets growth.
‘Emerging markets hedge funds delivered compelling performance in both an absolute and relative sense through the two distinct market cycles of the first two quarters of 2012, producing strong gains in the risk-on environment of 1Q12 and preserving those gains through the risk-off environment of the second quarter,’ says Kenneth Heinz, president of HFR, in a statement.
‘These powerful trends of strategic sophistication and performance transparency… will continue to define emerging markets hedge funds in coming quarters.’
Some 60 percent of hedge fund managers targeting emerging markets in the second quarter were pursuing a traditional strategy of fundamental growth, seeking stocks with high growth potential through analysis of financial statements, according to HFR.
At the same time, the number of hedge funds adopting macro strategies based on currencies, commodities and other variables rose to 13 percent of all hedge funds, HFR says.
Even with the decline in the second quarter, the HFR Emerging Markets Index rose 1.78 percent in the first seven months of the year, led by a gain of 3.87 percent in the Latin America Index, even as Brazil’s BOVESPA stock index, the largest in the region, declined.
The Russia/Eastern Europe Index increased 1.65 percent, beating Russian equities overall, as the index for emerging markets in Asia rose 0.84 percent.
At the same time, the global HFRI Fund Weighted Composite Index, comprised of all hedge funds worldwide, increased 2.79 percent, led by hedge funds focusing on fixed-income strategies.
