Emerging Markets hedge funds posted strong gains in March, leading industry-wide gains as equity and commodity markets reversed early quarter declines to conclude the first quarter, according to data released today by HFR.
The HFRI Emerging Markets Index advanced +6.9 per cent for the month, offsetting steep losses from January and bringing YTD performance to +0.8 per cent. March represents the strongest month of performance for Emerging Markets (EM) since the Index gained +9.6 per cent in May 2009. Hedge funds posted strong gains across Equity, Event Driven and Relative Value strategies, with the HFRI Fund Weighted Composite Index® advancing +1.8 per cent in March, the strongest gain for the FWC since February 2015.
Hedge fund strategies with exposure to global equities produced strong gains for the month as equities reversed steep losses from the first half of 1Q, with the HFRI Equity Hedge Index adding +3.4 per cent in March, its strongest monthly gain since January 2012. Equity Hedge (EH) sub-strategy performance was led by Fundamental strategies, with the HFRI EH: Fundamental Growth Index gaining +4.7 per cent, while the HFRI EH: Fundamental Value Index added +3.6 per cent.
Fixed income-based Relative Value Arbitrage (RVA) strategies also posted strong gains in March as investors discounted the dovish comments from the US Federal Reserve, with the HFRI Relative Value Index gaining +2.3 per cent, its strongest monthly performance since September 2009. RVA sub-strategies were led by funds with exposure to energy infrastructure and corporate credit, with the HFRI RV: Yield Alternatives Index adding +4.9 per cent HFRI RV: Corporate Index gaining +3.0 per cent.
Event Driven (ED) strategies also posted gains as high yield credit and arbitrage deal spreads tightened, with the HFRI Event Driven Index advancing +2.7 per cent. ED sub-strategy performance was led by the HFRI ED: Special Situations Index, which added +4.0 per cent, while the HFRI ED: Activist Index gained +3.1 per cent.
Performance of Macro hedge funds fell in March, although Macro remains the leading strategy area of hedge fund performance for 1Q16 after posting strong gains in January and February. The HFRI Macro Index declined -1.4 per cent in March, paring the YTD gain for the Index to +1.2 per cent. Quantitative, trend-following CTA strategies were the leading contributors to Macro declines, with the HFRI Macro: Systematic Diversified Index falling -2.8 per cent for the month, bringing YTD performance to +2.2 per cent.
Regional EM strategies posted the strongest performance industry-wide, led by Latin America, Emerging Asia and Russia. The HFRI EM: Latin America Index gained +14.5 per cent, the strongest performance since December 1999. Similarly, the HFRI EM: Asia ex-Japan Index added +6.8 per cent, its strongest monthly gain since April 2015. The HFRI EM: Russia/Eastern Europe Index advanced +6.7 per cent in March, bringing YTD performance to +6.8 per cent.
“Equity and Emerging Market hedge funds led strong gains in March to conclude a volatile first quarter with two clear and distinct market cycles including a six-week equity, commodity and EM selloff to begin 2016, and an ongoing recovery from that selloff. Conservative positioning and trend-following exposures served to insulate portfolios from declines intra-quarter, while resurgent equity and emerging markets posted strong gains to conclude the quarter,” says Kenneth Heinz, President of HFR. “Macroeconomic volatility is expected to remain high, with drivers including the Brexit vote, US elections, the surging Japanese Yen, and M&A fallout from the collapse of the proposed Allergan transaction. As a result, hedge funds are likely to remain strategically conservative and tactically opportunistic, adjusting exposures dynamically and continuously as trends develop and evolve.”
