Emerging-market macro hedge funds returned 2.6 percent in the first two months of 2018, paring part of January’s healthy gain after incurring a loss of 1.4 percent in February, according to Hedge Fund Research Inc.
The downbeat results don’t mean investors are expecting an exodus, as a combination of U.S. import tariffs and accelerating inflation have buoyed leveraged funds focused on developing nations, as they move toward their sixth consecutive quarterly advance.
Demand for emerging-market macro hedge funds remains so brisk, in fact, that their capital increased to $230 billion as of February 2018, the HFR data shows. Meanwhile, Global hedge fund capital began the year at a record $3.21 trillion.
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Emerging-market hedge funds have posted such a strong performance in large part due to new investments pumping into Russia/Eastern Europe and the Middle East/MENA regions.
According to the report, the HFRI EM: Russia/Eastern Europe Index returned +5.5 percent YTD, narrowly paring the 6.2 percent gain in January following a minor decline of -0.7 percent in February. Total capital of funds investing in Russia/ Eastern Europe increased to $32 billion across more than 170 funds in Q4 2017.
Commenting on this, Kenneth J. Heinz, President of HFR, said: ”Emerging Markets hedge funds were tactically positioned for the recent increase in realized volatility pursuant to new proposals and negotiations regarding trade agreements, tariffs and expectations for accelerating US inflation.”
“While certain high-performance beta strategies from 2017 experienced losses as these trends developed, EM hedge funds were able to tactically adjust positioning to take advantage of specialized, EM-specific opportunities across equity, currency and fixed income/inflation markets. As US inflation pressures continue to build in 2018, it is likely that EM hedge funds will lead hedge fund industry growth for investors looking for higher absolute performance with increased volatility protection,” he concluded.