Hedge Funds did well in August. Should we worry about EM?

This year has been terrible for funds short the stock market and a great year for those who bought bargain price bonds. It seems that the central bank money is helping out the fixed income funds- convertible arb has had an amazing year with 35% returns YTD.

Below is a summary of the action so far, expect more analysis later.

Credit Suisse/Tremont Hedge Fund Index (“Broad Index”) will finish up +1.68% in August
This is the sixth straight month of positive performance.

Wide dispersion in returns across global equity markets last month- EM in trouble?
Shanghai equity markets closed down over 20% , US and European markets peaked mid-month, reaching their highest levels since October 2008.
-This is concerning. I am going to look at more EM markets and see if we have an EM crisis coming up.... The EM central banks are weaker and cannot print money to support their debts... As the G-10 countries start saving more will the export oriented EM countries have a much harder time?

Small caps in Japan do better after elections
In Japan, markets rose modestly following the country’s national election and Japan-focused Long/Short Equity hedge funds were up approximately +1% for the month on average, benefiting primarily from stock selection and outperformance by the small-cap sector of the equity markets.

As a whole, Long/Short Equity managers had a generally positive month, finishing up an estimated 1.42%, while Emerging Markets returned an estimated 2.18%.

Event driven reaping benefits of special situations area
Event Driven managers returned approximately +2.46% for the month as managers continued to take advantage of tailwinds in equity and credit markets in the distressed environment. The majority of investment opportunities in the space currently appear to coming from the special situations area.

Global Macro, Futures etc. continue to do well
Managed Futures posted returns of 0.79%, representing their second positive month of performance so far this year (the sector was up +0.85% in May). Many managers in the strategy have struggled for most of this year, although trend followers appear to be beginning to show profits as models gain more traction. The Global Macro sector also experienced positive returns in August, posting a +0.94% gain as commodities-focused managers capitalized on rallies in metals, sugar and certain other softs.

Convertible Arb is back over this year after a horrible last year (up 35% over the year)
Convertible Arbitrage extended its run of positive performance to eight consecutive months, finishing up 3.37% in August, as opportunities in the space remained strong. Performance was muted, however, in comparison to returns of the past four months, when the strategy posted consecutive monthly returns of greater than 4%.

Fed helps Fixed Income funds do better
The US Federal Reserve and US Treasury announced an extension of its $200 billion term asset-backed securities loan facility (TALF) program, adding an additional three to six months from its original end-of-year expiration date. This was welcome news to many fixed income investors and relative value managers who had an overall positive month. Fixed Income Arbitrage managers are now up 2.39% year to date.