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Equity hedge leads HFRI to 11th gain in 12 months

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Hedge funds extended recent gains in February, as global equity markets rallied and all main strategies produced broad-based gains, led by equity hedge funds specialising in healthcare and technology.

The HFRI Fund Weighted Composite Index (FWC) advanced 1.0 per cent for the month, the 11th monthly gain in the trailing 12 months, bringing YTD 2017 performance to 2.2 per cent.
 
February extends the HFRI FWC Index Value to 13,241, the third consecutive monthly record, according to data released by HFR.
 
The HFRI Asset Weighted Composite Index posted a slightly higher return of +1.2 per cent for the month, increasing its YTD gain to +1.9 per cent.
 
Equity Hedge (EH) led HFRI performance in February, narrowly topping Fixed Income-based Relative Value Arbitrage strategies, as all four main strategy areas advanced for the month. The HFRI Equity Hedge (Total) Index gained 1.2 per cent in February and leads all strategy indices YTD with a +3.1 per cent return; the EH Index has climbed 14.5 per cent in the trailing 12 months. EH sub-strategy performance was led by Healthcare and Technology exposures, with the HFRI EH: Sector-Healthcare Index gaining 3.0 per cent in February and bringing 2017 performance to +5.3 per cent, which tops the MSCI World and matches the DJIA. The HFRI EH: Sector-Technology Index advanced 2.8 per cent for the month, increasing its YTD return to +5.2 per cent.
 
Hedge funds focused on Emerging Markets (EM) also strongly contributed to February performance, as the HFRI EM: Latin America Index surged 3.6 per cent, bringing its YTD gain to 9.0 per cent, while the HFRI EM: Asia ex-Japan Index added 2.7 per cent for the month. Partially offsetting these, the HFRI EH: Sector-Energy/Basic Materials Index declined 2.8 per cent, while the HFRI EH: Short Bias Index fell 3.4 per cent.
 
Lifted by exposure to Corporate Bonds and Credit Multi-strategies, Fixed Income-based Relative Value Arbitrage (RVA) also gained in February, with the HFRI Relative Value (Total) Index adding 1.1 per cent, bringing YTD performance to +2.5 per cent and marking the 12th consecutive monthly gain for the Index. RVA performance in February was led by the HFRI RV: Yield Alternatives Index, which advanced 1.6 per cent and increased its RVA sub-strategy leading YTD return to +5.0 per cent. RVA funds with Corporate and Credit Multi-Strategy exposures also positively contributed for the month, as the HFRI RV: Corporate Index climbed 1.4 per cent and the HFRI RV: Multi-Strategy Index added 1.3 per cent.
 
The HFRI Event-Driven (Total) Index gained 0.8 per cent in February, led by Activist and Special Situations funds, and increased its YTD return to 2.3 per cent. The HFRI ED: Activist Index advanced 1.0 per cent for the month, recovering its January decline, while the HFRI ED: Special Situations Index added +0.9 per cent, expanding its YTD return to 3.1 per cent. All ED sub-strategies produced positive performance in February, as the Index received contributions from Multi-Strategy, Distressed/Restructuring, Merger Arbitrage, and Credit Arbitrage funds.
 
The HFRI Macro (Total) Index also advanced 0.8 per cent in February, recovering the prior month’s decline, led by gains in quantitative, trend-following CTA strategies. The HFRI Macro: Systematic Diversified/CTA Index gained 1.8 per cent, with positive contributions from equities, fixed income and commodities. The HFRI Macro: Currency Index added 0.7 per cent, while the HFRI Macro: Commodity Index fell -0.4 per cent.
 
“Hedge funds extended the record HFRI level in February with broad-based gains across most sub-strategies, led by a diverse exposure group including Healthcare, Technology, Emerging Markets, and quant CTA strategies,” says Kenneth J Heinz (pictured), president of HFR. “While recent hedge fund performance has been positively correlated to equity and credit markets, managers remain focused on, and sensitive to, near-term macroeconomic and geopolitical risks, including new US trade policies, increasing US interest rates, and upcoming EU elections. Managers who are able to capture upside trends while also maintaining adequate tactical downside protections are likely to lead industry performance through H1 2017.”

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