The hedge fund industry was in positive territory to begin the fourth quarter, extending industry-wide YTD gains with strong contributions from Healthcare, Quantitative Equity, Activist and Fundamental Value funds, according to data released today by HFR.
The HFRI Fund Weighted Composite Index advanced +0.4 per cent in October as equities recovered from early intra-month declines and as the U.S. Federal Reserve lowered interest rates. Performance gains across Equity Hedge, Event-Driven and Relative Value Arbitrage strategies were partially offset by declines in Macro strategies. The HFRI 500 Fund Weighted Composite Index, an investible index of 500 leading hedge funds, gained +0.5 per cent in October. Liquid Alternative UCITS strategies also advanced for the month, with the HFRI-I Liquid Alternative UCITS Index returning +0.43 per cent, led by a +1.03 per cent gain in the HFRI-I Liquid Alternative UCITS Equity Hedge Index.
Bank Risk Premia strategies posted mixed performance for the month, with the HFR Bank Systematic Risk Premia Multi-Strategy Index advancing +1.8 per cent, which was only partially offset by the HFR Bank Systematic Risk Premia Rates Index, which declined -3.08 per cent. The HFR Risk Parity Vol 15 Index gained +1.0 per cent in October, extending the YTD return to +27.4 per cent.
The HFRI Equity Hedge (Total) Index led main strategy performance for the month with a +1.3 per cent return, bringing the YTD gain to +9.3 per cent. EH sub-strategies in October were led by the HFRI EH: Healthcare Index, which surged +4.3 per cent, and the HFRI EH: Quantitative Directional Index, which jumped +2.7 per cent. The HFRI Emerging Markets (Total) Index gained +1.75 per cent for the month, led by the HFRI EM: Asia ex-Japan Index, which surged +3.1 per cent. For the year, the HFRI EH: Fundamental Value Index leads EH sub-strategies with an +11.2 per cent return.
Event-Driven and fixed income-based Relative Value Arbitrage strategies also advanced for the month, as the US Federal Reserve lowered interest rates. The HFRI Event-Driven (Total) Index gained +0.8 per cent, while the HFRI Relative Value (Total) Index added +0.4 per cent. ED sub-strategy performance was led by the HFRI Activist Index, which advanced +1.7 per cent for the month and increased its YTD return to +11.7 per cent. RVA was led in October by the HFRI Fixed Income-Sovereign Index, which advanced +1.0 per cent. For the year, the HFRI RV: Yield Alternatives Index leads RVA sub-strategies with a +10.2 per cent return.
Macro strategies declined in October, as losses in quantitative trend-following CTA funds offset gains in Fundamental Discretionary Macro exposures. The HFRI Macro (Total) Index fell -1.3 per cent for the month, paring its YTD return to +5.4 per cent. Negative contributions were led by the HFRI Macro: Systematic Diversified Index, which fell -2.3 per cent in October. Trend-following losses were partially offset by gains in the HFRI Macro: Active Trading Index, which advanced +1.0 per cent, and the HFRI Macro: Discretionary Thematic Index which added +0.9 per cent.
“Hedge funds posted broad-based gains across a wide range of exposures and strategies in October, navigating early-month equity market volatility and speculation about short- and intermediate-term expectations for US interest rates following the rate cut by the Federal Reserve,” says Kenneth J Heinz, President of HFR. “Managers are actively positioning for interest rate volatility in 2020, Brexit scenarios, ongoing trade negotiations, impeachment proceeding and the US election- with any of these serving as a catalyst for market dislocations or sustained increases in realised volatility. Managers positioned for opportunities created by these powerful trends are likely to continue to attract investors into year end.”
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