Healthcare and technology lead HFRI gains into year-end

Heading into year-end, hedge funds extended their run of positive performance in November with broad-based gains across all strategies, led by the high-beta exposure sub-strategies, Healthcare, Technology, and Fundamental Value.

The HFRI Fund Weighted Composite Index gained +1.2 per cent in November, as optimism regarding US economic growth outweighed risks and negative sentiment around trade/tariff negotiations and impeachment proceedings, according to data released today by HFR.

The HFRI 500 Fund Weighted Composite Index, an investible index of 500 leading hedge funds, advanced +0.8 per cent in November, while the HFRI-I Liquid Alternative UCITS Index added +0.43 per cent, led by a +0.62 per cent return in the HFRI-I Liquid Alternative UCITS Equity Hedge Index.

Powerful risk-on sentiment drove gains in Bank Risk Premia strategies for the month, as the HFR Bank Systematic Risk Premia Credit Index surged +4.0 per cent, while the HFR Bank Systematic Risk Premia Currency Index gained +2.7 per cent. The HFR Risk Parity Vol 12 Index led risk parity exposures in November, adding +0.25 per cent for the month, while the HFR Risk Parity 15 Vol Index continues to lead YTD performance with its record +27.1 per cent return, reflecting the broad-based nature of gains across 4 major asset classes in 2019.

The HFRI Equity Hedge (Total) Index led main strategy performance for the month, advancing +2.0 per cent and bringing the YTD return to +11.4 per cent, which narrowly trails, but is on pace to eclipse, the 2017 gain of +13.3 per cent. Similar to October, EH sub-strategies were again led by the HFRI EH: Healthcare Index, which surged +6.1 per cent in November, while the HFRI EH: Quantitative Directional Index jumped +3.4 per cent.

Event-Driven (ED) and fixed income-based Relative Value Arbitrage (RVA) strategies also advanced for the month, as M&A activity remained vibrant while high yield credit gained. The HFRI Event-Driven (Total) Index gained +0.9 per cent, while the HFRI Relative Value (Total) Index added +0.4 per cent in November. ED sub-strategy performance was led by the HFRI ED: Special Situations Index, which advanced +1.8 per cent in November. For the year, ED sub-strategy performance continues to be led the HFRI ED: Activist Index, which has surged +13.1 per cent thus far in 2019. RVA was led by the HFRI RV: Multi-Strategy Index in November, which advanced +0.8 per cent, while the HFRI RV: Yield Alternatives Index leads RV sub-strategies YTD with a +9.1 per cent return.

Macro strategies advanced in November, partially reversing the October decline, led by quantitative trend-following CTA strategies. The HFRI Macro (Total) Index returned +0.3 per cent for the month, driven by the HFRI Macro: Systematic Diversified Index, which gained +1.0 per cent. The HFRI Macro: Active Trading Index added +0.6 per cent in November and leads Macro sub-strategies with a YTD return of +8.4 per cent.

“Broad-based gains across hedge funds, as well as risk parity, risk premia and liquid alternatives strategies underscores the underlying strength and correlation among the four major asset classes in recent months and leading into year-end 2019,” says Kenneth J Heinz (pictured), President of HFR. “This recent asset correlation represents both a performance tailwind benefit as well as a risk heading into 2020. While benefitting from this trend, managers are also positioning for interest rate volatility and other potential geopolitical and macroeconomic catalysts for volatility including Brexit scenarios, ongoing trade negotiations, impeachment proceeding, and the US election. Tactical exposure to opportunities created by these catalysts and trends is likely to define performance in early 2020.”