Global financial markets ended 2010 with a positive tone, with strength across global equity, commodity and credit markets throughout the month of December.
Fixed income yields rose despite continued subdued inflationary pressures, measures of manufacturing and employment improved while the US dollar declined against most major currencies. The HFRI Fund Weighted Composite Index gained 3.15% for the month, bringing full year performance to a gain of 10.42%; all strategies had a positive contribution for the month, with the most significant gains in Macro and Equity Hedge strategies.
Macro funds posted the strongest gains of the strategies with a contribution from equities and commodities as both fixed income and volatility declined. The HFRI Macro (Total) Index posted a gain of 3.73%, bringing its performance YTD to 8.41%. Both Discretionary and Systematic strategies had similar positive contributions, with short fixed income, long commodity and short US dollar positions contributing to gains for the month. Recovering from November’s losses, persistent trends across many asset classes contributed to a gain of 4.45% for the HFRI Macro: Systematic Diversified Index, with these ending 2010 with a gain of 9.48%.
The HFRI Equity Hedge (Total) Index posted a gain of 3.46%, with strong contributions from Fundamental Growth, Energy/Basic Materials and Emerging Markets exposures. The HFRI EH: Energy/Basic Materials Index gained 4.71%, bringing full year 2010 performance to 15.98%, eclipsing several other strategy indices to become the leading areas of hedge fund performance for the year. Gains across Equity Hedge were strong across nearly all sub-strategies with Quantitative Directional, Technology/Healthcare and Equity Market Neutral all contributing positively. Short Bias funds once again posted a sharp loss, with these declining by 8.51%.
The HFRI Event Driven (Total) Index posted a gain of 2.77%, with all sub-strategies having positive contributions led by gains in Special Situations and Activist funds. Risk tolerance declined and capital market issuance and strategic acquisition activity remained strong, contributing to gains of 3.82% in Special Situations and 2.68% in Distressed/Restructuring; Merger and Credit Arbitrage also posted gains for the month.
The HFRI Relative Value (Total) Index posted a gain of 1.41%, the seventh consecutive monthly gain and 23rd in last 24 months, ending 2010 with a gain of 11.81%. All Relative Value sub-strategies contributed tvo gains, with Fixed Income Corporate, Multi-Strategy and Yield Alternatives having the most significant positive contributions. Yields rose as investors shifted to riskier assets, offsetting fixed income losses with spread gains. Fixed Income: Asset Backed funds added 0.98% to end 2010 with a gain of 14.32%, while FI: Corporate posted a gain of 1.93% for December and credit-focused Multi-Strategy funds gained 1.95%.
The HFRI Fund of Hedge Funds Index posted a gain of 1.97%, while the HFRI Emerging Markets Index gained 2.77%, with the largest contributions from fund exposure in Russia/Eastern Europe and the Middle East.