India for the Win in Emerging Markets

“Emerging market hedge funds saw clients allocate an additional $3.5 billion in 2014 through September,” wrote Lawrence Delevingne of CNBC. According to HFR, this makes up nearly half of the $6.45 billion in inflows from 2013. All in all, $185 billion of hedge fund capital was invested in emerging market hedge funds. This is either a good thing or bad thing, depending on which emerging market your hedge fund focused on.

The returns of hedge funds focusing on emerging markets have been rather spotty, leading to disparate results in investment returns across the board. Hedge funds that focused on India for example, enjoyed a 4 percent increase in the third quarter and well into the fourth quarter. Their net of fees in 2014 through October, according to HFR, is up an average of 41.9 percent, which is quite impressive indeed.

According to Reuters, India share prices have rocketed as investors placed hope in the country’s new pro-business prime minister, Narendra Modi. Delevingne concurs, noting that: “Thanks to optimism about economic reform and growth under new Prime Minister Narendra Modi, the South Asian giant is by far the best performing hedge fund strategy in the world this year.”

“India is one of the few countries with real growth that looks to accelerate, whereas the rest of the world is slowing down,” said Pratik Sharma, managing director of $150 million Atyant Capital. The Atyant Capital India Fund is up 65 percent in the first three quarters of 2014 by focusing on bullish long bets on relatively small stocks.

Hedge funds that invested in Russia, in contrast, did not fare so well, losing an average of 12 percent net of fees, according to HFR. Delevingne pointed out that such a result might not be so surprising, “given the conflict in Ukraine, a record low for the rouble and falling oil prices.” Hedge funds focused on Latin America did not perform positively either, showing a decrease of 3.5 percent on average, “hit by declining currencies, such as the Brazilian real versus the mighty U.S. dollar.”

For Marko Dimitrijević, founder of emerging markets-focused hedge fund firm Everest Capital, abstaining from playing in the emerging markets sector is not a viable choice. “Buying or avoiding all emerging markets as a group doesn’t work anymore… Selectivity is the key.”