Japan hedge funds suffer amid ‘tourist’ sell-off

Global macro hedge funds are blamed for a sell-off in Japanese stocks that has led to volatile markets, with local managers struggling to make performance gains.
Japan hedge funds suffer amid ‘tourist’ sell-off

Japanese hedge funds had a second consecutive loss-making month in February, losing an average of -0.94% amid trading volatility, according to the latest Eurekahedge report.

Part of the blame has been attributed to global macro strategies – dubbed ‘financial tourists’ – exiting the stock market. The losses were higher than those on the benchmark Nikkei 225, which fell -0.49% last month, and follows losses in January of -0.18.

This takes the shine off Japanese managers, which were the top performers across all regions in 2013, with an average 25% gain.

A broad sell-off in February was caused by global macro hedge fund managers who were disappointed that the Bank of Japan didn’t accelerate its financial stimulus plan, says a report from Nikko Asset Management.

Global macro managers – which collectively manage billions of AUM – pile into the Japanese market during bull runs and sell when market sentiment dampens, to take quick profits.

Given their large trading volumes, macro strategies have the ability to move the market, while their relatively brief presence has earned them the moniker ‘financial tourists’ from Japan-focused hedge fund manager Michael Trace at Gordian Capital in Singapore.

Contributing to the bear market sentiment has been the political crisis in the Ukraine. Yen valuations rose as investors piled into the perceived 'safe haven' currency, impacting export-related stocks. At the same time, yen short sellers exited their positions.

Japan was the only loss-making region for hedge funds in February, with Asia and US-focused managers making gains, albeit smaller than those of their benchmark indices, according to Eurekahedge.

North American managers were the best performers in February, gaining 2.4%, against the MSCI North America’s 4.5% rise. Asia ex-Japan funds were up 2.1%, slightly below the MSCI AC Asia ex-Japan’s 3.4% return. Greater China managers gained 1.7% on average, outperforming the CSI 300, which fell 1% during the month.

The Asia ex-Japan hedge fund sector last month saw net inflows of $600 million and performance-based gains of $1 billion, bringing total AUM to $133 billion. In Japan, industry AUM rose to $15.8 billion in February after taking in $100 million of net inflows. 

On a global basis, there were $11 billion in net asset inflows to the sector, bringing total hedge fund AUM to  $2.03 trillion.

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