Hedge funds may be getting pounded in most corners of the world — suffering outflows and forced to trim fees to appease clients. But there’s one place they’re still turning a hefty profit: emerging markets.
Leveraged funds focused on developing nations returned 14% in the first seven months of 2017, according to Hedge Fund Research. That’s on track to be the best year since 2009, when they returned 20% on average. It’s more than triple the 3.7% return posted by the benchmark index of all hedge funds.
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Following criticism for its faulty 2016 election algorithms, the firm appointed a new research director to collaborate with its quants and money managers.
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The recent plunge raised suspicions that quants had caused or exacerbated the sell-off.
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Despite returns of about 8% last year, the products lagged behind the S&P 500’s 22% climb.
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Emerging markets are outperforming their developed-nation counterparts this year on the back of faster growth and narrower current-account deficits, as well as low interest rates from Japan to Europe to the U.S. that make riskier assets more appealing. The first half of the year saw the best string of monthly gains for emerging-market equities since 1993.
There wasn’t a lot of diversification among the top funds as technology has dominated the market gains in recent years.
“Emerging-market hedge funds have posted such a strong performance this year in large part due to the search for value,” said Robert Rauch, a money manager at Gramercy Fund Management who helps oversee $5.8 billion. “EM bonds still trade at a much wider spread than U.S. corporate bonds at each rating level. On the equity side, EM equities have lagged the U.S. indices for years, so they look relatively cheap as well.”
The MSCI Emerging Markets Index rose 0.3% at 9:17 a.m. in New York, advancing for a third day.
