China-focused hedge funds were the best performers in November globally, largely due to a rebound in the country's stock markets, while Japan strategies are also on course for a stellar year after a strong month.

China funds gained 3.26% in November and, despite a volatile year for equity markets, they are up 16.01% so far this year, according to data provider eVestment.

This is due to decent equity market performance recently, says Peter Laurelli, vice-president of the research group at eVestment. China’s CSI 300 Index was up 2% in November. “The funds focused [on China] tend to be long-biased-equity-focused, meaning during strong positive months for Chinese equities, these funds should do well,” he notes.

Japan-focused strategies continue to post strong numbers, returning 2.9% in November, and look set to be the best performers globally in 2013, posting gains of 31.74% in the first 11 months of the year. They have been reinvigorated by Abenomics, Prime Minister Shinzo Abe's three-pronged approach to boost the economy.

At the other end of the Asia scale, India hedge funds posted slight gains of 0.37% last month, but are still well down for the year, having lost -11.94% to end-November.

Globally, hedge funds posted modest gains of 1.1% in November and are set to outperform last year’s returns for 2013. They have returned 8.2% in 2013 so far, according to eVestment, and are on course to gain 9% for the year, up from 7.5% in 2012. 

By strategy, long/short equity is leading the pack for the year, posting gains of 14.42% in the 11 months to end-November. eVestment estimates they will return 15.8% for the year, well ahead of the 8.2% in 2012 and marking the best gains for long/short funds since 2009.

Equity strategies benefited from the Federal Reserve’s monetary policy for most of the year, says Anthony Lawler, portfolio manager at investment firm GAM. “Hedge fund managers continue to like US and select European equities from both a fundamental long, as well as a long/short perspective, given the Fed’s accommodative stance and the European Central Bank announcing a surprise rate cut in early November,” he adds.  

In November, global event-driven strategies were the best performers, boosted by activist, distressed and emerging markets-focused funds. They returned 1.77%, while long/short equity funds gained 1.34%.

“Hedge funds have extended gains in recent months, with equity hedge and event-driven funds leading industry returns as investor risk tolerance continues to normalise, supported by US-centric equity market gains, but despite lack of clarity on reduction of US stimulus measures contributing to mixed performance across global and emerging equity markets,” notes Kenneth Heinz, president of data provider Hedge Fund Research.

Managed futures strategies, meanwhile, posted gains for the second straight month after a five-month losing streak, returning 1.11% in November. But they are in the red for the first 11 months of the year, down -1.28%.

Looking ahead, HFR’s Heinz expects macro managers to do well at the start of 2014. “Investors [will] return to macro strategies [which] offer low equity and fixed income correlation, flexible commodity and currency exposures and thematic approaches through this fluid macroeconomic environment.”

GAM's Lawler says: “Other high-conviction trades remain in place, including the Japanese reflation theme expressed through short Japanese yen and JGBs [Japan government bonds] and long Japanese equities.

“Continued concern about emerging market growth rates is being partly expressed through Australian dollar shorts and emerging market credit shorts,” he adds. GAM expects these trades will continue into the first quarter.