Event-driven, equity hedge and activism were strong themes in 2013 and will likely continue in 2014 according to Kenneth Heinz (pictured), President of Hedge Fund Research. Activism was certainly a great trade in 2013; the HFRX Activist Index posted gains of 19.22 per cent. Equally, the HFRX Event-Driven Index gained 13.87 per cent and is already up 2.72 per cent YTD.
The HFRI Fund Weighted Composite Index gained 2.0 percent in February; this after posting a gain of 9.2 per cent in 2013, the best figures since 2010.
“Overall, investors and managers were generally satisfied with performance. As you look at 2014, it’s been a more volatile year so far yet the HFRI Fund Weighted Composite Index is still up 1.54 per cent,” says Heinz.
Currently, the HFRI is composed of 35 indices and continues to expand. Six new indices have been added this year including HFRI Activist Index, HFRI Discretionary Thematic Index, HFRI Macro: Active Trading Index in January, while HFR added HFRI Macro: Commodity, HFRI: EH: Fundamental Growth and HFRI EH: Fundamental Value in February.
“Over the next few months we’ll continue to release new indices,” says Heinz.
What makes the HFRI indices and underlying database so important to managers and investors alike is that they’ve proven their robustness over the last 20 years.
“People are familiar with the HFR Indices, Database and Strategy taxonomy; they understand them and appreciate the robustness and universal acceptance of the results. The challenge of operating a benchmark through periods of market stress, as HFR has for over 20 years, engenders the credibility for people to use it in all types of markets.
“Also, the underlying database is not only the most inclusive and representative in terms of funds, but also the most seasoned, meaning HFR has the most comprehensive coverage of the industry’s leading funds. Anybody using it gets the most inclusive and most representative performance characterisation available – the HFRI is regarded as the official scorekeeper of the hedge fund industry,” says Heinz.
What is important is not the performance of each index per se, but the performance of individual funds relative to their respective index. Whilst some indices suffer from survivorship bias and fund managers not wishing to post negative performance, the fact that so many investors use the HFRI indices and database helps preserve a high level of integrity and transparency.
“Most funds use their reporting relationship with HFR and their constituency in HFR Indices as a marketing asset and a testament to their organisational credibility. Because the use of the HFR Indices & Database is so pervasive with investors globally, their participation is not only a component of their efforts to reach investors, but an integral component of those.
“Managers and investors using HFR Indices have a greater awareness of the drivers of performance environment in which they are operating, contributing to more stable relationships,” says Heinz, who, on winning this year’s global award comments:
“HFR is again thankful to the readers of Hedgeweek for recognising HFR as the “Best Index Provider” for the 2nd consecutive year. As the hedge fund industry continues to expand and evolve in coming years, we look forward to tracking and providing robust indices and research to allow investors and hedge fund managers to benefit from and define these powerful trends.”