Average ILS fund returns held back by dividend releases in January

Insurance-linked securities (ILS) and pure catastrophe bond funds saw an average return of 0.35% in January 2014, below average for that month, according to the latest data from the Eurekahedge ILS Advisers Index.

The January return of 0.35% is only half the long-term average of 0.71%, according to the Eurekahedge ILS Advisers Index data, but there is good reason that it was so low. January sees dividends being distributed by some of the larger ILS funds included in the Index and this pulled returns down slightly for the month.

For comparisons purposes, the total return of the catastrophe bond market in January was 0.67%, according to the Swiss Re Global Cat Bond Total Return Index, while the price return index was down by 0.02%.

After a very healthy 2013, when the ILS Advisers Index saw a full year return of 7.56%, the start to 2014 may seem a little disappointing but the distribution of dividends while pulling back the index will have been welcomed by investors in those specific funds. It’s also worth noting that a fund-of-funds type ILS investment strategy would still have benefitted from the dividends as it would have received a share directly.

Stefan Kräuchi, founder of ILS Advisers, commented; “The rather slow start is due to the fact that two funds in the index paid dividends in January. Including the dividends from both funds the Eurekahedge ILS Advisers Index would have been up by 0.51% in local currency, which looks more like an average month.”

There was very little difference in January’s performance between the sub-group of pure catastrophe bond and funds and those with strategies including investments in private ILS instruments, according to Kräuchi.

He explained; “Pure cat bond funds as a group were up by 0.51% while the subgroup of funds whose strategies include private ILS increased by 0.49%, including dividends.”

New catastrophe bond issuance was slow in January, as is typical most years, with just two transactions completing during the month, noted ILS Advisers. Also a market talking point in January has been the severe winter weather in the U.S. and Europe, but at this time there have been no noted impacts to any catastrophe bond or ILS funds.

Eurekahedge ILS Advisers Index - Tracking the average performance of 30 ILS funds (click the image for more details)

You can track the Eurekahedge ILS Advisers Index on Artemis here including the new USD hedged version of the index. It comprises an equally weighted index of 33 constituent ILS funds which tracks their performance and is the first benchmark that allows a comparison between different insurance-linked securities fund managers in the ILS, reinsurance-linked and catastrophe bond investment space.