Hedge Funds Eke Out Eighth Positive Month in June

Hedge funds edged up 0.13% in June to post their eighth straight months of gains, according to research by eVestment. The industry posted gains of 0.84% for Q2, and 3.26% YTD.

The positive performance comes as investors have been reinvesting in the asset class after steep withdrawals in the prior year, amid some signs of relief for the industry.

Buoyed by strong international markets and investor risk appetite, emerging market hedge funds were among the strongest performers.

China funds gained 4.37% in June to post 17.01% gains YTD. Africa/Middle East- and Asia-focused funds both performed strongly in June as well, gaining 3.58% and 2.10%, respectively. Funds focused on those regions are up more than 10% YTD. India-focused funds gained 1.54% for June, bringing YTD gains to 19.88%.

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Brazil-focused funds lost 1.5% in June, but are up 4.76% YTD. Russia-focused funds, however, are negative for the year. They lost 1.5% in June and are down 0.7% YTD.

Activist funds were also strong performers, with gains of 1.45% for June and 5.25% YTD. Long/short equity funds gained 1.02% for June, for 5.62% gains YTD.

Managed futures funds were the weakest performers for both June and YTD, posting losses of 2.06% and 2.3%, respectively. The 10 largest hedge funds lost 1.12% in June, bringing YTD gains to .22%.

While being one of the few categories to see inflows in 2016, commodities-focused funds continued to struggle. They lost .76% in June for losses of 4.06% YTD. “As one of the only segments of the industry to see aggregate net inflows in 2016, recent commodity fund performance continues to be disappointing,” the report noted.

Tags: Brazil, China, eVestment, Hedge Funds

The estimated aggregate funding level of pension plans sponsored by S&P 1500 companies decreased by 1% to 82% funded status in June, due to a decrease in discount rates partially offset by mixed equity markets, according to a new report by Mercer.

Mercer noted that as of June 30, 2017, the estimated aggregate pension deficit of $416 billion represented an increase of $25 billion compared to the deficit measured at the end of May 2017. The aggregate deficit is up $8 billion from the $408 billion measured at the end of 2016, according to Mercer.

The deficit increased at the same time as the S&P 500 index gained 0.5% and the MSCI EAFE index lost 0.4% in June. Typical discount rates for pension plans as measured by the Mercer Yield Curve decreased by 4 basis points to 3.78%.

Matt McDaniel, a partner in Mercer’s US Wealth business, said the funding level fell even as “another Fed rate hike resulted again in a downward tick in pension discount rates. It is yet another reminder that the long duration rates used for pension liabilities are much more sensitive to supply and demand factors than to short-term Fed policy decisions.

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“This means that the future rate increases planned by the Fed probably won’t directly translate to improved pension funded status. Sponsors need a strategy to deal with a potentially flattening yield curve–those holding fixed income investments in a traditional aggregate strategy may find themselves hit the hardest as rates increase,” McDaniel said.

Mercer estimated the aggregate funded status position of plans sponsored by S&P 1500 companies on a monthly basis that the estimated aggregate surplus/deficit position and the funded status of all plans sponsored by companies in the S&P 1500.

The estimates are based on each company’s latest available year-end statement and by projections to June 30, 2017, in line with financial indices. The Mercer estimates include US domestic qualified and non-qualified plans and all non-domestic plans.

Using estimates of the aggregate funded status position of plans in the S&P 1500, Mercer estimated that the aggregate value of pension plan assets as of May 31, 2017, was $1.90 trillion, compared with estimated aggregate liabilities of $2.29 trillion.

Allowing for changes in financial markets through June 30, 2017, changes to the S&P 1500 constituents, and newly released financial disclosures at the end of June 2017, estimated aggregate assets were $1.90 trillion, compared with the estimated aggregate liabilities of $2.32 trillion.

Tags: Mercer, Pension, S&P 1500