Hedge funds posted mixed performance in the volatile month of March, as global equities declined on increasing trade and tariff tensions. The HFRI Fund Weighed Composite Index (FWC) posted a decline of 0.25 per cent for the month.
For the First Quarter 2018 (Q1 2018), the HFRI FWC advanced 0.35 per cent, topping the declines of the DJIA, S&P 500, and most European and Asian regional equity market indices.
Fixed income-based Relative Value Arbitrage (RVA) was the only main strategy that produced positive returns in March, as equities and interest rates both declined, with the HFRI Relative Value (Total) Index posting a narrow gain of 0.02 per cent for the month. In the quarter, the HFRI RVA Index gained 0.84 per cent, leading all HFR main strategy indices, while the HFRI RVA (Asset Weighted) Index jumped 1.43 per cent, as larger credit multi-strategies posted stronger returns. RVA monthly and quarterly performance was led by the HFRI RV: Fixed Income-Asset Backed Index, which gained 0.5 per cent in March and 2.3 per cent in Q1 2018. Volatility strategies returned 0.12 per cent in March, though the Index ended the quarter down 1.4 per cent.
Macro hedge funds posted a small decline of 0.18 per cent in March, concluding a volatile quarter in which the Index gained 2.8 per cent in January before a steep decline of 3.5 per cent in February, ending Q1 2018 with a loss of 0.97 per cent. The HFRI Macro: Systematic Diversified Index gained 0.12 per cent for March, though the Index declined 2.3 per cent for Q1 2018. Also in the quarter, larger Macro funds slightly outperformed the equally-weighted average, with the HFRI Macro Index (Asset Weighted) Index posting a smaller decline of 0.67 per cent in Q1 2018.
The HFRI Equity Hedge (Total) Index posted a decline of 0.31 per cent in March, though the Index gained 0.7 per cent for Q1 2018, topping most equity market indices globally. EH performance in March was led by Energy and Technology funds, with the HFRI EH: Energy/Basic Materials Index gaining 1.0 per cent, while HFRI EH: Technology added 0.3 per cent. For the quarter, the HFRI Tech Index jumped 5.1 per cent and the HFRI EH: Healthcare Index added 2.8 per cent, with the former effectively doubling the Q1 2018 gain of the Nasdaq Composite Index. The HFRI EH: Multi-Strategy Index also advanced 2.0 per cent for Q1 2018.
Activist funds led Event-Driven strategy performance in March, with the HFRI ED: Activist Index gaining 2.1 per cent for the month. In Q1 2018, the HFRI Event-Driven (Total) Index advanced 0.2 per cent, despite posting a decline of 0.49 per cent in March. Larger ED funds outperformed smaller ED funds over the quarter, as the HFRI Event-Driven Index (Asset Weighted) Index advanced +0.74 per cent in Q1 2018. Credit Arbitrage funds led ED sub-strategy performance for Q1 2018, with the HFRI ED: Credit Arbitrage Index gaining 1.9 per cent in the quarter.
Risk Parity funds advanced in March as equities declined and bonds gained, partially recovering sharp declines from the prior month with the HFR Risk Parity Vol 15 Index returning +0.89 per cent for the month, while the HFR Risk Parity Vol 10 Index added 0.51 per cent.
Funds investing in the volatile Blockchain sector suffered steep declines in March as global cryptocurrencies also fell sharply for the month. The HFR Blockchain Composite Index declined 42.9 per cent in March and ended Q1 2018 at -52.6 per cent, which follows the 2,774 per cent gain in 2017.
“March and the first quarter of 2018 have already defined a significantly divergent financial market and hedge fund performance environment than prior years, with the shift and volatility punctuated by escalation of trade and tariff politics and economics,” says Kenneth J Heinz (pictured), President of HFR. “As most equity markets declined, hedge funds quickly adapted to low and non-correlated exposures across asset classes, and to capital protection and preservation positions, en route to producing a first quarter gain. It is likely that these trends will not only continue, but accelerate into mid-year, driving uncorrelated gains and industry capital growth.”
