Morgan Stanley published its summary of August hedge fund data this week.

The figures show that on average, despite the global equity sell-off that occurred in late August, hedge funds around the world held up  ok relative to equity markets. Indeed, based on Morgan’s initial figures, the median return across all strategies was -1.8%. Long/short equity strategies show a loss of around 2.1%.

On a regional basis, European and North American focused hedge funds held up the best during August with median returns of -0.5% and -0.6% respectively. Based on Morgan’s preliminary figures, Asia ex. Japan- and EM-focused funds had the worst returns in August, down 5.4% and 6.1% respectively.

These relatively average returns seem to have continued into September. According to Morgan’s Americas-based prop estimate, long/short equity funds and the wider hedge fund universe are sitting on median returns of -0.8% and -0.6% respectively.

Morgan hedge funds returns 1

Hedge funds: steady performance

Hedge funds: Reducing leverage

Even though hedge fund performance was relatively stable during August, according to Morgan’s data, hedge funds have still been taking money off the table, and leverage across the universe has declined. Between August 18th and August 25th, US gross leverage dropped from 159% to 154%, before ticking slightly higher to end the month at 156%. Net leverage at US hedge funds fell from 55% at the start of the month to 51% during the last week of August before ending the month at 52%. Historic data shows that net leverage tends to trough at the end of August.

Leverage increased towards the end of August as hedge funds shifted from net sellers, to very large buyers of stocks (primarily in the US) from August 21 to August 25. Funds seemed to be buying the dip.

Hedge funds: Buying the dip

Hedge funds were net buyers of 8 sectors during August. Specifically, Info Tech (largest month of notional net buying since 2010) and Health Care (9th month of consecutive buying) stocks saw heavy buying, while Energy (2nd consecutive month after four consecutive months of net buying) and Cons Disc (4th consecutive month of selling) were the only two sectors that saw net selling.

Morgan hedge funds returns 2

Hedge funds: Sector buying

And North America’s share of global net exposure has increased relative to other regions recently, as market declines have presented opportunities for hedge funds to take advantage of. This has come at the expense of Japanese, Europe, and EM exposure. Hedge funds accelerated their selling of Japanese Europe and EM equities during August.

Hedge funds continued to aggressively sell Chinese equities during August as  Chinese markets plunged — A Shares drove most of the selling. Also, net exposures to Japan declined sharply due to the intense selling that took place in the first half of the month. Finally, after hitting a multi-year high during April, hedge fund exposure to Korean equities continued to tick lower.

The post North American Hedge Funds Hold Up Best Amid Equity Sell-Off: MS appeared first on ValueWalk.

Like this article? Sign up for our free newsletter to get articles delivered to your inbox Rupert may hold positions in one or more of the companies mentioned in this article. You can find a full list of Rupert’s positions on his blog. This should not be interpreted as investment advice, or a recommendation to buy or sell securities. You should make your own decisions and seek independent professional advice before doing so. Past performance is not a guide to future performance.