Hedge funds recorded their first monthly decline in eight months this June, as they battled volatile stock and bond markets. Hedge funds lost 1.3 % in June, while the broader S&P (Standard & Poor) 500 stock index fell about 1.7%. The decline was seen after seven months of gains, which was the longest recorded positive performance since 2011 for the US$2.25 trillion hedge fund industry. Overall, hedge funds have increased at about 3.6% this year, trailing the S&P500 which rose to 12.6% as seen in the first half of 2013.
Stock and bond markets went into frenzy after Federal Reserve Chairman Ben Bernanke indicated that the central bank has plans to taper its easy money policies. The sell-off across credit markets was felt as a particularly sharp move. As mortgage debt and corporate bonds soared, they hit a huge number of funds that had upped their exposure to certain securities which was seen in the previous months.
Increased market volatility overwhelmed most hedge funds in June, "pressuring emerging market, interest rate-sensitive and commodity-focused funds" in particular, Kenneth J. Heinz, president of HFR (Hedge Fund Research, Inc.), said in a statement.
"While tactical positioning and effective short hedging mitigated a portion of the losses across these areas, June performance was significant in that the trends of the previous six months across most asset classes were reversed."
As for emerging currencies, market equities and sovereign bonds, all were hit hard in the last few months. Hedge funds focused on Latin America and emerging Asian economies were hit the worst, with Asian economies losing 5.7% and Latin America losing 5.2%.
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