Emerging markets hedge funds lead the way for 2010, says HFR

Feb 18, 2011 by Martin Leonard

Emerging markets hedge funds produced the best industry returns in 2010 with the HFRI Emerging Markets (Total) Index increasing by 11.79%, according to data from Hedge Fund Research (HFR).

Funds with exposures to Russia and the Middle East led the way last year with the HFRX MENA Index gaining 22.67% and the HFRX Russia/Eastern Europe Index increasing 21.60%. However, the turmoil in Bahrain, Egypt and Tunisia will most likely have adverse effects on Middle Eastern-focused funds in 2011.

Assets in emerging markets hedge funds increased by $10 billion in the fourth quarter of 2008 with total assets reaching $114 billion. This is fast approaching their 2007 record asset levels of $116 billion.

The HFRI Emerging Markets (Total) Index comfortably beat the 10.30% gains seen on the HFRI Fund Weighted Composite Index. The HFRX Multi-Emerging Market Index, which is comprised of funds investing globally across several emerging market regions, posted a gain of 17.34%.

The increases are particularly significant considering these markets’ volatility with several regions experiencing equity market declines – the HFRI Emerging Markets (Total) Index posted gains in only six out of 12 months in 2010.

Meanwhile investors allocated more than $500 million in net new inflows to emerging markets hedge funds in the fourth quarter of 2010 – the largest quarterly inflow since 2008 reversing the trend of capital redemptions and investor risk aversion that has characterised the last nine quarters for these funds.

“As the global economic recovery accelerates into 2011, global investors interested in accessing superior growth characteristics will continue allocating to emerging markets hedge funds,” said Kenneth Heinz, president of Hedge Fund Research.

“Emerging markets hedge funds allow investors to access local market expertise via sophisticated strategies and have demonstrated the tactical flexibility to manage through the challenges presented by inflation, liquidity, sovereign debt and currency instability inherent in emerging markets investing,” he added.


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