Indian hedge funds end year-long winning streak

Hedge funds which allocate money only to Indian securities showed losses for the first time in a year last month as stocks of smaller companies underperformed. Volatility around the time of the budget also weighed on returns said hedge fund managers.

“India focused managers were down 0.51% during the month – their first month of negative returns after a 12 month winning streak,” according to a note from hedge fund tracker Eurekahedge.

The fall came even as peers investing in other regions enjoyed gains. Russia and Europe, both of whom had seen negative returns on account of sanctions and fears of Greece exit from the Eurozone, outperformed Indian hedge fund players. Other emerging markets too did better.

“Eastern Europe and Russia hedge funds saw their first gain in eight months, with the Eurekahedge Eastern Europe & Russia Hedge Fund Index soaring 12.49%…European managers came in second place, gaining 2.39% in February and 3.56% year-to-date, which outstripped returns for the entire year of 2014, buoyed by strong underlying markets as the MSCI Europe Index gained 6.09% during the month,” it said.

Emerging market hedge funds were up 1.98 per cent, while Japan gained 1.27 per cent.

Indian equity markets were marginally up during the month of February. The S&P BSE Sensex, whose returns are held to be representative of how the market is doing, was up 178.55 points from 29,182.95 to 29,361.50, or 0.61 per cent.

Anuj Didwania, Managing Director, Redart Capital Advisors which runs an Indian hedge fund said that concentration in lower capitalization stocks may have affected returns.

“It seems all the funds are in similar kinds of positions. Feb was the first month that the small cap and mid cap stocks gave a negative return. My guess is that most fund managers are concentrated in Mid and small cap stocks, which is what lead to the negative return,” he said.

Vaibhav Sanghavi, Managing Director, Ambit Investment Advisors which runs a hedge fund noted that February had been a month of large market movements.

“It’s more to do with volatility which has been high in February on account of the budget. Some hedge funds could have been affected by it, which could have resulted in the lower returns for the index,” he said.

Eurekahedge data is based on based on around 26 per cent of funds which have reported Feb 2015 returns as at 11 Mar 2015. India VIX, a volatility index, hit a high of 22.015 in February, its highest value in 2015.

Hedge funds had given positive returns of 5.3 per cent in January, and positive returns every month stretching back to February 2014. Total returns in 2014 was 38.83 per cent, according to Eurekahedge data before the decline in February 2015.

The outlook does not suggest an immediate bounce-back.

“The months ahead would mostly be flat to negative as there are no triggers except for the next earnings season – which should be weak looking at current trends and curtailed government spending in Q4. Valuations are expensive and now earnings will be needed to take markets further up. This should take a few quarters so one should expect sideways to downward markets for the next few quarters,” said Didwania.