Hedge funds negotiated a tumultuous environment in October, with the HFRI Fund Weighted Composite Index posting a narrow gain of 0.09 per cent for the month, according to data released by HFR.
Gains in macro, currency and equity hedge strategies offset losses in event driven and relative value arbitrage, reversing intra-month losses into month end. The volatile month included significant declines in oil and energy prices, idiosyncratic losses in event equity positions, a sharp intra-month broad based equity market decline and partial recovery, a steep drop in US Treasury yields on investor risk aversion, and the conclusion of the US Federal Reserve quantitative easing measures concurrent with an increase in the Bank of Japan stimulus efforts.
Macro hedge funds, including both discretionary and quantitative trend following strategies, led industry gains for the month, with the HFRI Macro Index posting a gain of 0.46 per cent. Macro sub-strategy performance was led by currency and CTA strategies, with the HFRI Currency Index gaining 1.66 per cent, while the HFRI Systematic Diversified/CTA Index advanced 0.75 per cent, the third consecutive monthly gain. Partially offsetting these, the HFRI Macro: Multi- Strategy Index declined 1.1 per cent, while the HFRI Emerging Markets Index posted a narrow decline of 0.1 per cent with the month, with gains in emerging Asia offset by losses in Russia and MENA.
The HFRI Equity Hedge Index gained 0.37 per cent for the month, led by gains in EH: quantitative directional and technology strategies. The HFRI EH: Quantitative Directional Index gained 1.69 per cent for the month, while the HFRI EH: Technology/Healthcare Index gained 1.22 percent, leading EH sub-strategies YTD with a gain of5.32 per cent through October. Partially offsetting these, the HFRI Energy/Basic Materials Index declined 3.15 per cent on the sharp fall in energy prices, contributing to a drawdown of over eight per cent in last two months.
Event equities experienced a volatile month with steep losses across Fannie Mae, Shire/Abbvie and American Realty contributing to monthly declines for event driven and relative value arbitrage strategies. The HFRI Event Driven Index declined 1.02 per cent for the month, led by declines in merger arbitrage and special situations sub-strategies of 1.53 and 1.35 per cent, respectively. The fixed income-based HFRI Relative Value Arbitrage Index posted a decline of 0.61 per cent, led by declines of 2.89 and 0.57 per cent in volatility and asset backed exposures; relative value strategies continue to lead strategy performance YTD with a gain of 4.35 YTD through October. Partially offsetting these declines were gains in HFRI ED: Activist Index of 0.98 per cent and the HFRI RV: Sovereign Index, which gained 0.20 per cent for the month.
“Hedge funds experienced a dramatic intra-month performance recovery to post a narrow gain for October, overcoming increased asset volatility and dispersion, as well as concentrated losses in widely held event equity positions,” says Kenneth J Heinz, president of HFR. “The HFRI October performance distribution displayed negative skewness, with more than half of constituent funds posting gains, resulting in median performance exceeding the average. While it is unlikely to
expect realised volatility from October to persist in coming months, active stimulus measures from Japan and the weakening economic outlook in Europe have contributed to managers maintaining flexible and opportunistic positioning to quickly adjust to the dynamic market environment.”
