HFR: Hedge Funds Extend Gains In Feb

March, 2017

Hedge funds extended recent gains in February, as global equity markets rallied and all main strategies produced broad-based gains, led by Equity Hedge funds specializing in Healthcare and Technology. The HFRI Fund Weighted Composite Index® (FWC) advanced +1.0 percent for the month, the 11th monthly gain in the trailing 12 months, bringing YTD 2017 performance to +2.2 percent. February extends the HFRI FWC Index Value to 13,241, the third consecutive monthly record, according to data released today by HFR®, the established global industry leader in the indexation, analysis and research of the global hedge fund industry. The HFRI Asset Weighted Composite Index posted a slightly higher return of +1.2 percent for the month, increasing its YTD gain to +1.9 percent.

            Equity Hedge (EH) led HFRI performance in February, narrowly topping Fixed Income-based Relative Value Arbitrage strategies, as all four main strategy areas advanced for the month. The HFRI Equity Hedge (Total) Index gained +1.2 percent in February and leads all strategy indices YTD with a +3.1 percent return; the EH Index has climbed +14.5 percent in the trailing 12 months. EH sub-strategy performance was led by Healthcare and Technology exposures, with the HFRI EH: Sector-Healthcare Index gaining +3.0 percent in February and bringing 2017 performance to +5.3 percent, which tops the MSCI World and matches the DJIA. The HFRI EH: Sector-Technology Index advanced +2.8 percent for the month, increasing its YTD return to +5.2 percent. Hedge funds focused on Emerging Markets (EM) also strongly contributed to February performance, as the HFRI EM: Latin America Index surged +3.6 percent, bringing its YTD gain to +9.0 percent, while the HFRI EM: Asia ex-Japan Index added +2.7 percent for the month. Partially offsetting these, the HFRI EH: Sector-Energy/Basic Materials Index declined -2.8 percent, while the HFRI EH: Short Bias Index fell -3.4 percent.

            Lifted by exposure to Corporate Bonds and Credit Multi-strategies, Fixed Income-based Relative Value Arbitrage (RVA) also gained in February, with the HFRI Relative Value (Total) Index adding +1.1 percent, bringing YTD performance to +2.5 percent and marking the 12th consecutive monthly gain for the Index. RVA performance in February was led by the HFRI RV: Yield Alternatives Index, which advanced +1.6 percent and increased its RVA sub-strategy leading YTD return to +5.0 percent. RVA funds with Corporate and Credit Multi-Strategy exposures also positively contributed for the month, as the HFRI RV: Corporate Index climbed +1.4 percent and the HFRI RV: Multi-Strategy Index added +1.3 percent.

The HFRI Event-Driven (Total) Index gained +0.8 percent in February, led by Activist and Special Situations funds, and increased its YTD return to +2.3 percent. The HFRI ED: Activist Index advanced +1.0 percent for the month, recovering its January decline, while the HFRI ED: Special Situations Index added +0.9 percent, expanding its YTD return to +3.1 percent. All ED sub-strategies produced positive performance in February, as the Index received contributions from Multi-Strategy, Distressed/Restructuring, Merger Arbitrage, and Credit Arbitrage funds.

            The HFRI Macro (Total) Index also advanced +0.8 percent in February, recovering the prior month’s decline, led by gains in quantitative, trend-following CTA strategies. The HFRI Macro: Systematic Diversified/CTA Index gained +1.8 percent, with positive contributions from equities, fixed income and commodities. The HFRI Macro: Currency Index added +0.7 percent, while the HFRI Macro: Commodity Index fell -0.4 percent.

            “Hedge funds extended the record HFRI level in February with broad-based gains across most sub-strategies, led by a diverse exposure group including Healthcare, Technology, Emerging Markets, and quant CTA strategies,” stated Kenneth J. Heinz, President of HFR. “While recent hedge fund performance has been positively correlated to equity and credit markets, managers remain focused on, and sensitive to, near-term macroeconomic and geopolitical risks, including new US trade policies, increasing US interest rates, and upcoming EU elections. Managers who are able to capture upside trends while also maintaining adequate tactical downside protections are likely to lead industry performance through 1H17.”