Hedge funds posted strong gains in October to begin the fourth quarter in positive fashion, according to data released by HFR. October’s gains partially reversed declines from a volatile Q3, driven by equity, fixed income and credit-sensitive strategies.
The HFRI Fund Weighted Composite Index (FWC) posted a gain of +1.7 per cent for the month, bringing the FWC to a Net Asset Value of 12,424, with gains led by Equity Hedge and Activist strategies. October represents the strongest FWC monthly gain since February and brings the YTD performance to +0.03 per cent. This YTD gain tops the decline of the DJIA, but narrowly trails the modest gain of the S&P 500, which reversed a sharp YTD decline with strong October performance.
Hedge fund performance was led by the HFRI Equity Hedge (EH) Index, which advanced 3.2 per cent in October, the strongest monthly gain since January 2013, driven by a recovery in energy-focused and fundamental strategies.
The HFRI EH: Energy/Basic Materials Index gained 5.7 per cent for the month, while the HFRI EH: Fundamental Value Index added 3.6 per cent. The HFRI Emerging Markets Index advanced +3.5 per cent in October, led by recoveries in funds focused on China and Brazil. EH performance was also complemented by gains in Quantitative, Growth, Market Neutral and Multi-Strategy EH sub-strategies.
The HFRI Event Driven Index added 1.7 per cent in October, led by gains in Activist and Special Situations sub-strategies. As idiosyncratic event equity volatility soared on dislocations and recoveries in a number of individual positions, the HFRI Activist Index gained +5.6 per cent for the month, its strongest gain since November 2012, reversing a four-month drawdown and bringing the Index to +1.8 per cent YTD 2015. Similarly, the HFRI Special Situations Index gained 2.4 per cent for the month, while HFRI Merger Arbitrage Index added 1.3 per cent.
Fixed income based-strategies also posted gains for October, as high yield credit tightened, the U.S. Fed maintained low interest rates and the ECB signalled possible stimulus measures. The HFRI Relative Value (RV) Arbitrage Index gained 1.8 per cent for the month, led by exposures to corporate credit multi-strategies and volatility. The HFRI RV: Corporate Index advanced 2.9 per cent in October, while the HFRI RV: Volatility Index added +.4 per cent, leading all RV sub-strategies YTD with a gain of 8.1 per cent.
Mixed performance from Currency, Commodity, and quantitative trend-following CTA strategies detracted from the HFRI Macro Index in October, which fell 0.5 per cent for the month. The HFRI Macro: Systematic Diversified/CTA Index declined 1.4 per cent in October, the HFRI Currency Index fell -0.9 per cent, and HFRI Commodity Index posted a loss of -0.6 per cent. Partially offsetting these, the HFRI Macro: Active Trading Index gained 1.0 per cent, while the HFRI Macro: Discretionary Thematic Index added +0.9 per cent for the month.
“Equity, credit and event-sensitive strategies led October performance, driven by the improvement in many steeply-discounted positions, long/short opportunistic trading, and broad-based gains in equity market indices, as hedge funds reversed from a narrow YTD decline to a narrow gain,” says Kenneth J Heinz, President of HFR. “This dynamic performance recovery is both fluid and ongoing, as 3Q volatility and dislocations in many equity, credit and commodity exposures have created opportunities yet to be fully monetised. Despite a strong equity market recovery in October, macroeconomic and interest rate uncertainty are likely to continue through year end, creating new performance opportunities and driving industry capital growth into 2016.”
