Hedge funds posted mixed performance to begin 2016 as global financial markets plunged, driven by steep declines in oil and concerns regarding the global impact of the slowing Chinese economy, resulting in the worst start to a year for hedge funds since 2008.
The broad-based HFRI Fund Weighted Composite Index posted a decline of -1.7 per cent for January, bringing the Index Value to 12073.48, while the HFRI Asset Weighted Composite Index fell -1.2 per cent, according to data released today by HFR, the established global leader in the indexation, analysis and research of the global hedge fund industry. Total hedge fund capital was USD2.90 trillion to start 2016, narrowly below the mid-2015 record level of USD2.93 trillion.
Macro hedge funds led gains for the month, with contributions from trend-following short exposure to equity and commodity markets. The HFRI Macro Index posted a gain of +1.5 per cent in January, while the HFRI Macro: Systematic Diversified/CTA Index was up +2.6 per cent, both representing the strongest respective gains since January 2015. Also for the month, the HFRI Macro: Currency Index added +0.9 per cent, while the HFRI Macro: Active Trading Index advanced +2.6 per cent. Partially offsetting these, the HFRI Macro: Discretionary Thematic Index declined by -1.1 per cent, while the HFRI Macro: Commodity Index fell -0.7 per cent.
Directional equity and credit strategies declined in January, with the HFRI Equity Hedge Index falling -3.7 per cent, the worst monthly performance since May 2012. Equity Hedge (EH) losses were led by the volatile Technology & Healthcare space, with the HFRI EH: Technology/Healthcare Index falling -8.1 per cent, the worst monthly decline since February 2001. Similarly, the HFRI EH: Fundamental Value and Fundamental Growth Indices fell -4.1 and -4.5 per cent, respectively. Emerging Markets hedge funds also posted steep losses, as the HFRI Emerging Markets Index declined -4.6 per cent, led by Emerging Asia and Middle East exposures, with these HFRI Indices falling -7.3 and -6.8 per cent, respectively. Partially offsetting these losses, the HFRI EH: Short Bias Index advanced +2.9 per cent for the month, while the HFRI EH: Equity Market Neutral Index gained +0.8 per cent.
Event Driven (ED) and fixed income-based Relative Value Arbitrage (RVA) strategies also posted declines for the month, as the HFRI Event Driven Index fell -2.3 per cent, while the HFRI Relative Value Arbitrage Index declined by -1.7 per cent. ED losses were led by the HFRI ED: Activist and HFRI ED: Special Situations Indices, which fell -6.1 and -2.9 per cent, respectively. ED losses were partially by offset gains in the HFRI Merger Arbitrage Index, which advanced +0.2 per cent. RVA losses were led by HFRI RV: Yield Alternatives Index, which declined -5.2 per cent while the HFRI RV: Convertible Arbitrage Index fell -2.7 per cent.
“The performance divergences between directional beta and defensively-positioned market neutral and quantitative trend-following strategies accelerated and expanded in January, as Systematic Macro CTA posted strong gains while global equity and commodity markets extended the sharp declines from late 2015,” says Kenneth J Heinz (pictured), President of HFR. “The four-year global equity bull market ended in the latter half of 2015 and financial markets are currently progressing through a cyclical transition period which is likely to be defined by continued volatility, diverging regional economic cycles and increased opportunities in sophisticated, tactical, hedged strategies. Hedge funds which have demonstrated their ability to preserve capital and generate uncorrelated gains through this environment will serve to reduce overall portfolio volatility and will continue to attract investor capital into early 2016.”
