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November Hedge Fund Returns Eat Broader Market’s Dust at 1.1%

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Hedge funds in November rebounded from a two-month decline, posting a 1.1% return, according to a report by eVestment.

Year-to-date aggregate returns stand at 2.9%, compared with 14% for the S&P 500, and well below the 10.2% hedge funds returned in 2013.

November’s biggest winner was managed futures, up 3.4%, followed closely by activist funds, up 3.3%. Both strategies got a boost from rebounding U.S. equity markets and strong moves in currency and interest rate markets, eVestment said.

Credit and commodity-focused strategies both reported declines, down 0.2% and 0.3%, respectively.

The biggest losers in November were funds focused on the energy sector, down 6%, and on Brazil, down 4.4%.

Erasing Losses

Managed futures’ current four-month winning streak is this group’s best stretch since the four months ended December 2010. Year to date, the strategy is up 6.9%.

Managed futures funds with more than $1 billion under management have led the recent run, according to eVestment. With an 11.9% year-to-date return through November, the $1 billion-plus group is on pace for an outstanding year.

Virtually all of managed futures’ 2014 gains have been made since the beginning of August, which corresponds with the onset of the U.S. dollar’s strong moves against the euro and the yen.

eVestment said macro funds appeared not to have taken advantage of recent opportunities in foreign-exchange markets, returning only 0.5% in the last three months. This was because the macro strategy was weighed down by funds with elevated dedicated physical commodity exposures.

The report said large macro funds had produced returns more than two times larger than the rest of the macro universe, but still trailed their large managed futures peers by nearly half. This was most likely due to systematic managed futures strategies being more adept at aligning exposure to the strong greenback, it said.

In November, activist funds erased nearly all their aggregate losses sustained in September and October. Their 3.3% return raised year-to-date performance to 6.5%.

So far this year, activist funds lag only managed futures, healthcare-focused equity, securitized credit and India-focused strategies to win best-performance kudos.

For their part, credit strategies are in the midst of a difficult period, having recorded losses in each of the last five months. The only exception, eVestment said, were those targeting asset-backed securities markets.

The report said that similar to large managed futures strategies, credit strategies’ current trend can also be traced back to the start of the strong U.S. dollar in early August.

Since then, losses in high yield and European markets have hurt directional credit strategies, which have declined more than 2%, and distressed funds, which have lost nearly 4% since July.

— Check out How Hedge Funds Will Fare in Next Big Crash on ThinkAdvisor.