Hedge funds are on track to produce the biggest returns since the financial crisis.
The industry returned 0.57 percent in June, increasing 2017 gains to 4.87 percent in its best start to a year since the first half of 2009, according to a report Tuesday from financial data provider Preqin. In staging their comeback, hedge funds extended their streak of positive performance to eight straight months.
This is the first time since 2007 that the $3 trillion industry has recorded positive returns for each month in the first half of a year, according to Preqin. Still, returns are subdued compared to historical results: During the first six months of 2009, hedge funds had returned 16.94 percent more than triple what they are producing now.
Although we have not seen large monthly gains, consistent performance has bolstered the asset class returns, and 12-month performance is now in double digits, said Amy Bensted, Preqins head of hedge fund products, in a company statement on the report.
Despite improving returns, investor sentiment toward hedge funds remains negative, particularly as the industrys performance is still low compared to stocks and bonds, according to Nolan Bean, head of institutional investments at Cincinnati-based consultant Fund Evaluation Group.
The challenge for allocators is determining how much is cyclical i.e. hedge funds not keeping up with equities in a bull market, which they shouldnt and how much is secular, he said. Classic hedge fund trades are known and have been arbitraged away now that the industry has grown.
Hedge funds saw a 12-month return of 10.91 percent through June, according to Preqin. Though performance varied across strategies, all delivered gains over the last year except for commodity funds, which in June had their worst month since October 2016, the firm said in its report.
Activist hedge funds were the best performer over the last twelve months, up 16.5 percent. Over the first half of this year, Asia-focused hedge funds emerged as a top contender, with year-to-date gains of 7.45 percent, the report shows.
Bensted also noted that discretionary managers outperformed systematic funds over the last year despite growing interest in machine learning and artificial intelligence.
Continued investment themes globally including a more hawkish attitude from central banks, as well as more settled markets in Europe and Asia have allowed discretionary fund managers to pull ahead of their systematic counterparts, she said.