Hedge funds extended gains in March to conclude the first quarter of 2013 at record levels, tracking US equity performance, which also advanced to close the quarter at new highs.
The HFRI Fund Weighted Composite Index gained 1.2 per cent in March bringing the 1Q13 gain to 3.9 per cent, with top contributions from fixed income-based relative value arbitrage and equity hedge and strategies, as reported by HFR.
The HFRI Fund Weighted Composite Index closed 1Q13 with a net asset value (NAV) of 11,482, surpassing the previous peak set in April 2011, concluding a 20-month drawdown in 1Q and creating a new performance high watermark for the industry. An investment of USD1,000 in the hedge fund industry at the start of 1990, as represented by the HFRI, would have grown to USD11,482 as of the end of 1Q13, an 11.5x increase. A similar investment in the S&P 500 would have grown by approximately 7.3 times.
March gains were led by fixed income-based relative value Arbitrage strategies, with the HFRI Relative Value Arbitrage Index gaining 1.5 per cent in the month and 3.8 per cent for 1Q13. RV gains were driven by credit multi-strategy and yield alternative exposures (including MLPs), with the HFRI RV: Multi-Strategy Index gaining 2.9 per cent in March and 5.2 per cent for the quarter, while the HFRX MLP Index gained 15.4 per cent for 1Q13.
Equity hedge led strategy gains for 1Q13, as the HFRI Equity Hedge Index gained 1.5 per cent in March and 5.3 per cent for the quarter; fundamental value strategies advanced 7.2 per cent in 1Q while HFRI EH: Technology/Healthcare Index gained 6.3 per cent for the quarter.
As a direct result of the dynamic and robust environment for corporate transactions and increased shareholder accountability pressures, event driven hedge funds also made positive contributions to industry performance, with the HFRI Event Driven Index gaining 1.0 per cent for March and 3.8 per cent for 1Q13. Hedge funds focused on special situations advanced 4.7 per cent for the quarter, while activist managers gained 8.6 per cent in 1Q13.
Macro funds also posted gains in the first quarter, but these were tempered by commodity declines, currency reversals and falling equity volatility. The HFRI Macro Index gained 0.5 per cent in March and 1.4 per cent for 1Q13, with active trading and currency-focused strategies gaining 3.2 and 2.0 per cent, respectively, for the quarter. The HFRI Macro: Systematic Diversified CTA Index gained 1.2 per cent for 1Q13, while commodity focused strategies declined by -1.0 per cent.
The HFRI Fund of Hedge Funds Index gained 1.0 per cent in March, while the HFRI Emerging Markets Index declined by -1.0 per cent for the month, paring its 1Q13 gain to 2.4 per cent.
“Despite certain differences, 2013 has started in a very similar manner to 2012, with a risk-on trading environment contributing to strong performance from equities and more balanced gains from hedge funds as Macro risks remained pronounced,” says Kenneth J. Heinz, president of HFR. “Extensive stimulus and quantitative easing have comprised a base of support for US & Japanese equities in recent months, but the risks of competitive currency devaluations, extraction of QE stimulus and evidence of labour market weakness have grown as well, prompting many managers to adopt conservative positioning by reducing net exposure to the equity market rally. Through this environment, hedge funds are likely to continue producing balanced gains in coming quarters, independent of the prevailing risk regime and trading conditions.”