Hedge funds posted declines in December, led by Energy and Quantitative CTA strategies, to conclude a volatile, turbulent year in financial markets, according to data released today by HFR.
The year began with major dislocations in currency markets, included steep declines for oil and energy commodities, as well as Emerging Markets, and concluded with rising geopolitical and terrorism threats as well as the first US interest rate increase in nearly a decade. Oscillating between positive and negative performance throughout the year, the HFRI Fund Weighted Composite Index® posted a decline of -0.85 per cent in December, ending the year down -0.85 per cent, only the fourth calendar year decline in hedge fund performance since 1990. Despite the decline, an estimated 55 per cent of all hedge funds posted gains for 2015.
HFR is pleased to announce the launch of the HFRI Asset Weighted Index family, comprised of a broad-based composite of all strategies, as well as the 4 main hedge fund strategies. The HFRI Asset Weighted Index, which is the asset-weighted version of the HFRI Fund Weighted Composite Index, fell -1.3 per cent in December, and posted a decline of -0.4 per cent for 2015. Since 2008, the HFRI Asset Weighted Index has averaged an annualised gain of +4.6 per cent, outperforming the HFRI Fund Weighted Composite Index by +1.5 per cent on an annualised basis.
Hedge funds outperformed US equities in December, as the S&P 500 and Dow Jones Industrial Averages declined -1.6 and -1.5 per cent, respectively, on a total return basis, while the Russell 2000 declined over -6.0 per cent. For FY 2015, US equities were mixed, as the S&P (SPX) and Dow Jones (DJI) indices fell -0.73 and -2.23 per cent, respectively, though on a total return basis, these posted narrow gains of +1.38 and +0.21 per cent, respectively.
Equity Hedge strategies outperformed US equities in December, with steep losses in Energy-focused strategies partially offset by gains in Market Neutral strategies. The HFRI Equity Hedge Index fell -0.6 per cent in December, bringing FY 2015 performance to a decline of -0.4 per cent. The HFRI Equity Hedge Index-Asset Weighted posted a narrow decline of -0.1 per cent in December, although the Index advanced +1.8 per cent for 2015. The HFRI Equity Market Neutral Index led EH sub-strategies in December with a gain of +0.7 per cent, while HFRI Technology/Healthcare Index led EH sub-strategies for 2015 with a gain of +6.0 per cent. The volatile HFRI Energy/Basic Materials Index led declines in both December and FY 2015, falling -2.4 and -13.0 per cent, respectively.
The fixed income-based HFRI Relative Value Arbitrage Index posted a narrow -0.2 per cent decline in 2015 after falling -0.85 in December. However, larger RVA exhibited outperformance, with the HFRI Relative Value Arbitrage Index-Asset Weighted gaining +0.9 per cent for 2015. RVA sub-strategies were led by the HFRI Volatility Index in both December and FY 2015, advancing +0.5 and +7.0 per cent, respectively. Yield Alternative strategies were the laggard of RVA sub-strategies, as the HFRI Yield Alternatives Index posted declines of -4.6 and -16.5 per cent in December and FY 2015, respectively. The HFRI Credit Index, comprised of all alternative credit strategies, fell -1.0 per cent in December and -1.1 per cent for the year.
Event Driven strategies also declined in December and for FY 2015, though ED sub-strategy performance was clearly bifurcated between credit- and equity-sensitive strategies and non-sensitive strategies. The HFRI Event Driven Index posted declines of -0.4 and -2.9 per cent, respectively, in December and FY 2015, with declines led by the HFRI Distressed Index, which fell by -2.4 per cent and -8.4 per cent, the worst calendar year performance since 2008. Alternatively, the HFRI Merger Arbitrage Index gained +1.2 per cent in December and +3.4 per cent for the year, the strongest annual performance since 2013. The HFRI Activist Index lost -0.6 per cent in December, though the Index gained +1.5 per cent for 2015, recovering from a 4-month, intra-year drawdown of over -9.0 per cent.
Macro strategies declined in December, resulting in a narrow performance loss for the year. The HFRI Macro Index fell -1.4 per cent in December, bringing FY 2015 performance to a decline of -1.3 percent; the HFRI Macro Index-Asset Weighted was flat in 2015, returning 0.00 per cent. The HFRI Currency Index led Macro sub-strategy performance for the year, gaining +0.3 per cent in December and +1.4 per cent for 2015. The HFRI Macro: Systematic Diversified Index led Macro sub-strategy declines in December and FY 2015, falling -2.4 and -2.3 per cent, respectively.
“Low interest rates, steep commodity losses and intense equity market volatility contributed to a challenging environment in 2015, resulting in a wide dispersion between the best and worst performing funds, and a narrow performance decline for the overall hedge fund industry,” stated Kenneth J Heinz (pictured). “Through this environment and with some variability, the capital-weighted, aggregate industry performance has shown a premium to the equally-weighted performance, resulting in capital-weighted gains across equity- and fixed income-based hedge funds for the year. With volatility accelerating into 2016, strategies which have demonstrated opportunistic performance throughout 2015 are likely to lead industry performance and attract investor capital in the new year.”
