Hedge funds have also been increasingly piling into emerging markets. Hedge funds assets invested in emerging markets rose by $4.7 billion in the second quarter to end 2Q16 at $189.8 billion. This is about 6.5% of the total capital invested in hedge funds globally.
The HFRI Emerging Markets (Total) Index returned 5.2% YTD (year-to-date) as of July 2016. That compares to the HFRI World Index, which has delivered 2.9% YTD.
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According to Kenneth J. Heinz, president of HFR Asset Management, “EM hedge funds have successfully navigated gains in the US Dollar, Japanese Yen, and Swiss Franc, as well as Brexit-related declines in the British Pound Sterling. With developed market rates remaining suppressed by stimulus measures through mid-year, specialized hedged EM exposures represent a compelling opportunity for global investors, benefitting from either continued low rate environment or increasing global inflation.”
Ray Dalio’s Bridgewater Associates, the largest hedge fund in the world, currently manages about $212.3 billion in assets. About half of its portfolio is invested in emerging markets. The Vanguard Total Bond Market ETF (BND) commands 30.9% of its portfolio, with another 18.6% allocated to the iShares MSCI Emerging Markets ETF (EEM). Another 0.34% is invested in the iShares MSCI Brazil Capped ETF (EWZ).
Within emerging markets, Latin America (ILF) has been a major contributor in driving up emerging market performance.