Emerging market hedge funds rebound from December lows

Hedge funds focusing on emerging markets have posted the strongest returns so far this year out of the 13 strategies tracked by the Edhec-Risk Alternative indexes.

Emerging market hedge funds posted the weakest performance in the Edhec-Risk index in December, down 1.3%. But they have bounced back in the new year, posting positive returns of 10.8% year to date.

The other weak performers in December 2011 have not managed to change their fortunes around so quickly.

Global macro, long/short equity and funds of funds were all down in December by 0.17%, 0.57% and 0.53% respectively.

All three strategies have sunken deeper into negative territory this year. Global macro is down 1.7%, long/short equity down 6.0% and fund of funds down 5.9% year to date.

Most strategies have not performed well so far this year, with the exceptions of fixed income arbitrage (up 3.9%) and pure short selling strategies (up 6.5%).

Edhec-Risk’s results imply hedge funds could be in for a similar year to 2011 when they recorded their second worst year of performance in two decades.

Despite this disappointing performance, Barclays Capital has forecast hedge funds will take $80bn of net inflows this year. Strategies considered better at dealing with difficult markets (global macro, systematic and volatility-based strategies) will receive the bulk of this new investment.

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