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Currency, macro hedge funds produce negative returns in June

Macro hedge fund managers and currency funds have suffered a second successive month of negative returns amid sharp corrections in the commodity, equity and currency markets, according to data from Hedge Fund Research and BarclayHedge.

Macro funds typically suffered a worse month than currency specialists. HFR’s Macro (Total) Index fell by 1.76% in June from the previous month. All macro funds and major commodity trading adviser strategies reported negative contributions, the research firm says.

Macro strategies are down 2.15% year-to-date – the only main strategy area with negative return in the first half of the year, HFR says.

The poor currency returns have been the result of often choppy, yet directionless, markets over the month, which have seen, anecdotally at least, reduced trading volumes and reduced returns for currency investors and proprietary traders. As Royal Bank of Canada notes in a report on July 12, positioning, like prices, seems to be in a period of stasis awaiting a sign on the next directional move in G10 currencies before pouncing. That may turn out to be the case in July, if price action so far is anything to go by. The euro has fallen from $1.4480 to $1.3850 so far this month.

BarclayHedge, another firm that aggregates returns for hedge funds and commodity trading advisers, recorded a net decline of 0.78% among all CTAs for the month – more modest than their macro CTA counterparts, which lost an average 1.14%. The figures are based on 72% of specialist currency managers reporting their returns as of July 11. Furthermore, weaker commodity prices also dampened returns.

Sol Waksman from BarclayHedge tells EuromoneyFXNews that, in spite of poor macro performance, losses were modest in the context of a poor month for risk. “The [hedge fund] macro index is down 1.5%, but given everything that’s been going on, that could have been a lot worse,” Waksman says. “Gold and oil both fell, which really hurt global CTAs. China tightening its lending provisions hasn't helped either.”

June’s declines weren’t as steep as May’s, when the BarclayHedge currency index declined by some 2.9%, breaking three straight months of gains. In the first six months, BarclayHedge’s Currency Traders Index shows a return of 0.8%. In 2010 the index returned 3.45%.

This index reports returns for 117 firms. It is a sub-index of the Barclay CTA Index. The currency segment was the least worst performing sub-index for the month, with the exception of the Discretionary Traders index, which registered a 0.01% gain.

Among other highlights in the first half of the year, according to HFR, is that global hedge fund assets under management topped $2 trillion for the first time. In its report into first-quarter activity, the firm also notes a record number of new funds opening – 298 – accompanied by a 12-month high in liquidations at 181, an attrition rate of around 2%.

Despite heightened activity, the firm’s report also notes a narrowing of performance among fund managers, with the top decile of funds registering an average 41.3% positive return versus the bottom decile’s average decline of -14%. This gives a top-bottom dispersion of 55.3%, the firm says – the lowest disparity since 2005.

 Hedge Fund Research: Global macro fund returns, H1 2010 vs H1 2011

Key: rate of return (%)

Source: Hedge Fund Research
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