HFR has launched two new indices, the HFR Blockchain Composite Index and the HFR Cryptocurrency Index, the first family of indices designed to capture performance of hedge funds investing in this rapidly evolving space.
The HFR Blockchain Composite Index includes funds that invest directly in blockchain technology, cryptocurrency or other emerging blockchain innovations. Managers focus on how blockchain technologies have begun to, and will continue to, fundamentally change payments, banking, market trading structure, Internet of things (IoT), healthcare, remittances, supply chains, digital identity and more. In addition, key exposure themes include cloud storage, decentralised computing, digital investment platforms, distributed ledger technology and promising innovations involving token interconnectivity and transaction scalability. The HFR Blockchain Composite Index has two constituent strategies – Cryptocurrency and Infrastructure. It includes performance data starting in 2015 with annualised performance of +282 per cent since inception, punctuated by a meteoric surge of +1,522 per cent in 2017 through November.
The HFR Cryptocurrency Index, a sub-strategy index of the Blockchain Composite, includes all funds which invest and trade in cryptocurrency directly, typically generating performance through an actively managed portfolio of cryptocurrency assets, including Bitcoin, Ethereum, Litecoin, Ripple and many other coins, as well as new initial coin offerings (ICOs). Managers may use a variety of trading strategies from discretionary techniques to multiple automated bitcoin trading algorithms to analyse trends and adjust their portfolios as necessary. These trading strategies are primarily Macro in nature, including both fundamental and systematic trend-following approaches, but may also include, Arbitrage and Momentum strategies. The HFR Cryptocurrency Index has annualised performance of +292 per cent since inception and has surged +1,641 per cent in 2017 through November.
HFR began tracking the first cryptocurrency hedge fund in 2013, though interest and growth in this area has surged in 2017 as a result of stratospheric price increases and broad proliferation of new coins via ICOs, as well as launches of listed futures contracts. In addition, trading platforms that enable trading and improve liquidity to these dynamic and evolutionary markets have expanded and become more secure.
The HFR Blockchain Indices are rebalanced on a quarterly basis and are investable through tracker funds operated by HFR Asset Management. Index performance reflects a universe of over 20 products which is expected to expand rapidly into 2018.
“Investor interest in funds offering exposure to Blockchain technologies and Cryptocurrencies has surged in recent months as these innovations continue to move towards the mainstream and generate compelling opportunities for investors, portfolio managers, traders and other market participants,” says Kenneth J Heinz (pictured), President of HFR. “While the recent performance has been exciting, trading and investing in these evolving areas requires specialised expertise and involves substantial volatility and risks, both real and structural. Taking these risks into consideration, it is likely that the evolving fundamental disintermediation of traditional payment processing associated with blockchain and cryptocurrencies will continue to grow in an absolute sense and as a component of hedge fund exposures.”
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