HFRI mixed in January as virus contagion fears drive volatility

Hedge funds posted mixed performance in January, as fears of contagion related to the coronavirus drove global equity market volatility into month-end. 

The HFRI Fund Weighted Composite Index posted a narrow decline of -0.19 per cent for January, with declines in Equity Hedge and Event-Driven only partially offset by gains in Macro and Relative Value Arbitrage strategies, according to data released today by HFR.

The HFRI 500 Fund Weighted Composite Index, an investable index of 500 leading hedge funds, fell -0.03 per cent in January. Liquid Alternative UCITS strategies also posted mixed performance for the month, as the HFRI-I Liquid Alternative UCITS Index declined narrowly by -0.11 percent, while the HFRX Global Hedge Fund Index, another investable index from HFR, gained +0.41 percent. Gains across volatile cryptocurrencies drove the HFR Blockchain Index to a surge of +54.4 percent, the strongest monthly gain since December 2017.

Shifting risk sentiment drove mixed performance across Bank Risk Premia strategies, with the HFR Bank Systematic Risk Premia Multi-Asset Index surging +5.9 per cent in January, while the HFR Bank Systematic Risk Premia Credit Index fell -4.7 percent. Following the industry leading gain of +29.7 per cent in 2019, the HFR Risk Parity Vol 15 Institutional Index added +0.1 per cent in January.

Macro hedge funds led strategy gains for the month, as investor risk tolerance fell sharply into month-end on uncertainty associated with the contagion of the coronavirus. The HFRI Macro (Total) Index gained +0.6 per cent in January, led by the HFRI Commodity Index, which gained +1.6 percent, and the HFRI Macro: Systematic Diversified Index, which added +0.9 percent. The HFRI 500 Macro Index gained +0.8 per cent for the month.

Fixed income- based Relative Value Arbitrage (RVA) strategies also advanced in January, with the HFRI Relative Value (Total) Index gaining +0.4 percent. RVA sub-strategy performance was led by the HFRI RV: Convertible Arbitrage Index and the HFRI RV: Fixed Income Sovereign Index, which respectively gained +1.4 and +1.2 per cent for the month. The HFRI 500 Relative Value Index gained +0.7 per cent for the month.

The credit-sensitive HFRI Event-Driven (Total) Index posted a narrow decline of -0.17 per cent in January, as gains in the HFRI ED: Distressed and HFRI ED: Credit Arbitrage indices were offset by declines in ED: Multi-Strategy and ED: Activist funds.

The HFRI Equity Hedge (Total) Index fell -0.9 per cent in January, as gains in Technology exposures were offset by declines in Value, Energy and specific Emerging Markets exposures. While the HFRI EH: Technology Index surged +3.1 per cent for the month on strong earnings from large cap US-technology exposures, these gains were more than offset by losses in the HFRI EH: Fundamental Value Index and HFRI EH: Energy Index, which fell -2.4 and -0.8 percent, respectively. The HFRI EM: China Index declined -1.4 per cent for the month on uncertainty associated with the contagion of the coronavirus.

“Macro strategy gains in January reflect a sharp, near-term reversal of the powerful risk-on, beta-driven sentiment which drove industry-wide performance in 2019, while in contrast to this, technology gains reflect a more narrowly-focused continuation of this sentiment, especially specific to large cap US technology exposures,” says Kenneth J Heinz, President of HFR. “The combination of these two divergent trends in conjunction with the conclusion of the Presidential impeachment proceedings and the potential for broader supply chain disruption impact of the coronavirus contagion represents critical strategic shifts in the continuum of economic and geopolitical risks. Managers dynamically positioned to benefit from additional upside driven by the US-led global economic expansion, while positioning for dislocations and reversals which are also likely to occur, are likely to define industry performance gains in 2020.