Debt aids recovery

Global emerging markets hedge funds have demonstrated a measure of recovery in the 12 months to August despite difficult market conditions. But in general the funds show poor returns over a turbulent three-year period with all segments, from Asia through Eastern Europe and Latin America, experiencing severe losses.

In the past year the 22 funds in the emerging market sector tracked by S&P Micropal managed an average rate of return of 19.6%, and an average maximum drawdown of 14.7%. Volatility has been high: around 24% over the year.

Despite recent improvements in performance the three-year figures are weak, with average returns of -6.7%. The mean maximum loss was an astonishing 46.7% during that period, and high annual volatility. Unsurprisingly, given the relative strength of the emerging market debt markets much of that time, the best performing fund is the Consulta Emerging Markets Debt Fund. The $120m fund has benefited from a recovery in debt prices around the less developed world. The JP Morgan Emerging Market Composite Debt Index, covering mainly reconstructed Brady debt, has gained 28% in the past year, 81% over two years and 115% over five years.