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Trend following quant hedge funds lead gains in March

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Hedge funds posted gains in March, with performance driven by strong macro trends in Currency and Commodity markets, complemented by broad-based gains and positioning in Event Driven, Equity Hedge and fixed income-based Relative Value Arbitrage strategies.

The HFRI Fund Weighted Composite Index® gained +0.5 per cent in March and +2.4 per cent in 1Q15, completing the strongest quarter of outperformance relative to S&P 500 since 3Q11, as reported today by HFR®, the established global leader in the indexation, analysis and research of the global hedge fund industry. 

All four HFRI main indices were positive for the quarter, and nearly all sub-strategy indices were also positive, underscoring the broad-based nature of the recent positive performance trends. Total hedge fund industry capital globally entered 2015 at a record $2.85 trillion, with both institutions and individual investors increasing allocations in recent years.

For the 3rd consecutive quarter, Macro strategies led industry gains, led by trend following, quantitative CTA strategies, which have benefitted from strong trends and effective positioning in the Oil and Currency markets over the last year. The HFRI Macro Index gained +0.7 per cent in March and +3.4 per cent for 1Q15, with Macro funds gaining in 10 of the last 12 months. The HFRI Macro: Systematic Diversified/CTA Index gained +1.1 per cent in March and +5.1 per cent for 1Q15, with CTA’s also posting the tenth monthly gain over the past 12 months. Other Macro sub-strategies also contributed to recent gains with the HFRI Currency Index adding +0.8 per cent in March and +2.2 per cent in 1Q15, while the HFRI Macro: Active Trading Index advanced +1.0 per cent in March and +3.5 per cent for 1Q15. 

Equity Hedge strategies were the top performing strategies for March, led by contributions from recovering Energy and EH: Multi-Strategy exposures; the HFRI Equity Hedge Index gained +0.5 per cent for March and +2.3 per cent for 1Q15. The HFRI Energy/Basic Materials Index gained +2.5 per cent in March to lead EH sub-strategy performance, while this volatile Index experienced a 5-month drawdown of over -17.0 per cent through January 2015, as Oil and valuations in Energy companies fell sharply. For 1Q15, Equity Hedge performance was led by the HFRI EH: Technology/Healthcare Index and HFRI EH: Multi-Strategy Indices, which gained +4.3 and +5.7 per cent, respectively.

Event Driven hedge funds also posted gains, with the HFRI Event Driven Index advancing +0.6 per cent in March and +2.0 per cent for 1Q15, led by Activist and Special Situations ED sub-strategies. The HFRI ED: Activist Index added +2.8 per cent in 1Q, while the HFRI ED: Special Situations Index gained +3.1 per cent,  with significant positioning in Herbalife, Vivendi, Heinz and DuPont; the HFRI Merger Arbitrage Index gained +2.4 per cent for 1Q. 

Fixed income-based Relative Value Arbitrage strategies also posted gains, with the HFRI Relative Value Arbitrage Index advancing +0.3 per cent for March and +1.7 per cent for 1Q, as bond yields pierced historical lows and negative nominal levels in response to ECB quantitative easing. RVA sub-strategy performance for 1Q was led by the HFRI RV: Volatility Index, which gained +3.4 per cent for the quarter and is comprised of options-based funds which trade volatility as an asset class. The HFRI RV: Convertible Arbitrage Index climbed +0.2 per cent in March and +2.1 per cent for 1Q, while the HFRI: RV: Multi-Strategy Index returned +0.5 per cent and +2.0 per cent in March and 1Q, respectively.

Emerging Markets hedge funds experienced regional performance dispersion in 1Q, with gains in Emerging Asia and recovering Russian exposures offset by declines in Latin America and the Middle East, resulting in the HFRI Emerging Markets (Total) Index posting a gain of +1.0 per cent for the quarter. The HFRI EM: Asia ex-Japan Index added +4.9 per cent while the HFRI EM: Russia/Eastern Europe Index advanced +5.1 per cent for 1Q, with the latter beginning a performance recovery after falling -25.6 per cent in 2014. The HFRI EM: Latin America and HFRI EM: MENA Indices fell -7.1 and -2.0 per cent,  respectively, in 1Q.

“Hedge funds posted the highest quarterly performance since 2013 in 1Q, navigating dislocations in Currency and Commodity markets, benefitting specifically from trend following Macro exposures as financial markets discounted the end to US quantitative easing, as well as the inception of ECB stimulus measures,” stated Kenneth J. Heinz, President of HFR. “While considerable uncertainty as to the near-term path of the global economic recovery exists at present, the environment for hedge fund strategies which opportunistically capture risk premia across various asset classes has improved recently as beta driven US equity gains of the prior 3 years have moderated. Expecting the fluid macro environment and trading opportunities in Oil, Currency and M&A (including Energy and Healthcare) to persist, hedge fund performance is likely to extend recent gains through mid-year.”

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