* Emerging market funds up 7.8 pct in YTD through September
* Last year emerging market funds lost 16.4 pct
* India-focused funds beat S&P 500 index in Q3
By Katya Wachtel
NEW YORK, Oct 15 Fund managers that specialize
in investing in emerging markets have achieved standout gains of
nearly 8 percent in a year when the typical hedge fund has eked
out returns of about 5 percent, recent data showed.
Emerging market-focused hedge funds gained 4.5 percent in
the third quarter, adding about 2.6 percent in September,
according to industry tracker eVestment|HFN.
Hedge funds, on average, gained only 1 percent in September
and 2.79 percent for the quarter. Year-to-date average returns
in the more than $2 trillion industry were about 5 percent
through September, compared to emerging market funds, which were
up 7.8 percent over the same period.
Those gains still trailed the benchmark S&P 500 stock index
, which added 2.25 percent last month and climbed 16.43
percent for the year through Sept. 30.
Still, the quarterly gains achieved by emerging market hedge
funds were better than any other major category of fund, data
from eVestment|HFN showed, including credit funds, which have
posted solid performance this year with successful investments
in high-yield junk bonds as well as mortgage-backed securities.
This year's gains represent a turnaround for emerging market
funds, which lost 16.4 percent in 2011, far more than the 5
percent losses recorded by hedge funds on average.
Despite strong returns among emerging market funds,
investors withdrew $4.9 billion in July and August. Through Aug.
31, emerging market funds experienced outflows of almost $18
billion, according to the latest eVestment flow data.
"Investor flows for emerging market hedge funds have been
among the worst in the hedge fund industry over the last year
with net outflows occurring in 11 of the last 12 months," Peter
Laurelli, head of industry research for eVestment|HFN emailed.
"However, there isn't necessarily a lack of interest in
emerging market exposure from institutional investors," he
added, noting that large investors are opting to get emerging
market exposure "outside the hedge fund space," where fees are
Emerging market mutual bond funds, for example, have
attracted inflows for their attractive yields while emerging
market hedge funds have seen money pulled out.
The Barclays Capital Global Emerging Markets Index has
jumped 15.1 percent this year compared with a 3.77 percent gain
for the broader Barclays Aggregate Bond Index, as investors have
flocked to emerging market bond funds in the period.
For example, the TCW Emerging Markets Income Fund, which is
up 16.17 percent for the year, attracted nearly $784 million in
new money in the third quarter, according to mutual fund tracker
Some hedge funds the bet in emerging markets have posted
similarly impressive gains. BTG Pactual's Global Emerging
Markets and Macro Fund rose about 20 percent through Sept. 28,
according to data from HSBC's private bank.
And Contrarian Capital Management's roughly $220 million
Emerging Markets OFF Fund rose about 13.3 percent through
September, according to HSBC data.
Some emerging market funds, however, have struggled to keep
pace with their competitors. Louis Bacon's Moore Emerging Equity
Long/Short Fund was down 16.4 percent through Sept. 30, for
While most hedge funds trailed the broader stock market,
India-focused funds beat the S&P 500's 6.35 percent rise in the
three months to September, with gains of 9.4 percent, according
Hedge funds that focus on investing in India added about 10
percent in September alone, and have gained 23.3 percent for the
year. Those funds sank almost 34 percent last year.