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Greece, China Turmoil Hit Hedge Funds in June

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Big declines in Chinese equities and uncertainty around Greece’s referendum cast dark shadows over the hedge fund sector in June, according to Hedge Fund Research.

The HFRI Fund Weighted Composite Index fell by 1.3% in June.

That loss was the worst monthly decline since June 2013, reducing first half gains to 2.4%.

Despite the June decline, hedge funds still outperformed U.S. equities by more than 200 basis points in the first half, as measured by the S&P 500.

Macro hedge fund strategies took the biggest hit in June, down 2.4%, with losses across equity and currency exposures. Year to date, macro is down 0.4%.

This was macro strategies’ worst monthly performance in seven years, according to HFR, and reversed recent strength in macro and CTA strategies, the top performers in 2014. Over the trailing 12-month period, macro is up 5.6%, and CTA is up 7.4%.

The HFRI Equity Hedge Index suffered a more modest loss in June, down 0.8%, paring the strong first-half gain for the index to 4.1%.

Fundamental growth and China exposures led the declines. The HFRI China Index fell by 3.5% for the month, cutting its first half gain to 18.9%.

Similarly, fundamental growth strategies were down by 1.3%, reducing their January-to-June gains to 4.4%.

Technology and health care partially offset these losses, gaining 0.4% for June, and now leads all sub-strategies for 2015 with a gain of 8.3%.

The HFRI Event Driven Index also declined by 0.8% in June, reducing its first-half performance to 3.1%.

In June, relative value arbitrage strategies were hurt by rising bond yields and widening deal spreads, losing 1% and bringing first half performance down to 2.2%.

For the first six months of 2015, relative value sub-strategy performance was led by volatility strategies, with the volatility index gaining 4.8%, despite a 0.7% decline for June.

Finally, the HFRI Fund of Funds Composite Index lost 1.2% in June, reducing its year-to-date return to 2.6%.

“Increased financial market volatility and reversals of many of the performance trends from the first half of 2015 resulted in declines across many areas of hedge fund performance to conclude the month of June, with an increased focus on hedge fund exposure to and positioning in Chinese and Greek/European equities, oil and euro currency,” HFR president Kenneth Heinz said in a statement.

“While each of these remains an active and fluid financial market consideration in the short term, hedge fund performance across equity, event-driven and arbitrage concluded 1H15 with outperformance of US equities, highlighting an important performance inflection point.”

Heinz said that as recent macroeconomic uncertainty developed and evolved in coming months, hedge fund investors were likely to benefit from non-directional and low-beta exposures to sundry complex and diverse trends in the second half.

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