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Hedge funds down in November says HFR

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Hedge funds posted monthly declines in November for the fifth time in the last seven months, as lack of clarity on resolution of the European sovereign debt crisis resulted in continued investor caution and risk aversion. The HFRI Fund Weighted Composite Index declined by 0.92 per cent, with weakness across all sub-strategies more concentrated in equity and credit sensitive strategies, as reported today by HFR (Hedge Fund Research, Inc.) the leading provider of data, indices and analysis of the global hedge fund industry.
 

Relative Value funds posted a decline for the month, as US interest rates declined while borrowing costs breached unsustainable levels for several indebted European sovereign issuers and global financial institutions remained vulnerable to additional losses and risk. The HFRI Relative Value Index posted a decline of 0.15 per cent in November with weakness in Convertible Arbitrage and Yield Alternatives partially offset by positive contributions from Fixed Income Asset Backed and Volatility strategies. The HFRI FI: Convertible Arbitrage Index declined by 1.31 per cent on credit weakness while Yield Alternatives declined by 0.58 per cent. The HFRI FI: Asset Backed Index gained +1.5 per cent as these strategies benefitted from falling US yields, effective hedging and muted exposure to European financing weakness; Volatility funds gained 2.5 per cent, the strongest area of sub-strategy performance for the month.
 
The HFRI Equity Hedge Index declined by 1.60 per cent, reversing a portion of October’s gain of nearly 5 per cent; Equity Hedge narrowed the intra-month loss considerably in the final week of the month, recovering nearly half of its intra-month decline into month-end. Fundamental Growth and Energy/Basic Material funds posted declines of -2.7 and -2.5 per cent, respectively, while the HFRI Emerging Markets Index declined by -3.1 per cent. Short Bias funds and factor-based Quantitative Directional strategies gained +1.1 and +0.6 per cent, respectively.
 
Macro funds posted mixed performance, with losses in Currency and other Systematic strategies partially offset by gains in Commodity focused funds. The HFRI Macro Index posted a decline of 0.35 per cent despite a gain of 0.8 per cent in Commodity strategies, while Systematic Diversified funds posted a decline of 0.5 per cent and Currency strategies declined by 0.8 per cent. The HFRI Event Driven Index declined by 0.65 per cent, also partially reversing the October gain of 3.15 per cent. Credit sensitive Distressed and Special Situations funds posted declines of 1.4 and 0.7 per cent, respectively, while the HFRI Merger Arbitrage Index posted a gain of 0.2 per cent.
 
“Hedge funds posted declines and mixed strategy performance in November, with most of the month dominated by uncertainty on a resolution of the European sovereign debt crisis raising questions with investors about possible adjustment to the Euro currency,” says Kenneth J Heinz (pictured), President of HFR.  “In the current environment, funds are maintaining flexible, hedged and opportunistic positions across asset classes, balancing their core micro portfolio holdings with informed macro themes, while continuing to expect and anticipate directional volatility.”

 

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