Hedge funds pick up the pace, as industry returns continue to rise in February

Staying ahead

The hedge fund industry gathered further momentum during February, as managers generated positive performances across the strategy spectrum, with equities, macro, commodities, activist and cryptocurrency strategies generating particularly strong gains, new industry data shows.

Amid rapidly-evolving developments on vaccinations, energy policy, and inflation rises, Hedge Fund Research’s main Fund Weighted Composite index surged 4.05 per cent in February, and is now up 5.35 per cent since the start of 2021.  Meanwhile, the investable HFRI 500 Fund Weighted Composite Index rose 2.22 per cent last month, and has generated 2.06 per cent during the first two months of the year, according to HFR’s monthly metrics, published on Monday.

Overall, almost every hedge fund sub-strategy finished the month in positive territory, with equity hedge funds seizing on the retail trading spike, macro and CTA funds taking profits from rates and commodities rises, and crypto, activist, tech and energy managers also surging.

But performances were also underpinned by a degree of broad dispersion: the top decile of the HFRI rose 16.3 per cent, while the bottom decile slumped 3.1 percent for the month.

Kenneth Heinz, HFR president, said February’s numbers marked the strongest four-month period in more than 20 years.

“Performance widened to include not only event driven and equity hedge, but also captured strong positive contributions from trend-following macro and interest rate-sensitive relative value arbitrage strategies,” Heinz said.

Equity hedge fund strategies, which take long and short bets across a range of sectors and sub-strategies, are now up 6.35 per cent for the year, after the HFR’s Equity Hedge (Total) Index added 4.85 per cent in February.

Within this sector, hedge fund managers targeting energy and basic materials led the way, posting a 9.35 per cent monthly rise aided by strong oil market gains last month. These strategies are now up 13.85 per cent year-to-date. Elsewhere, the fundamental value index spiked 6.44 per cent in February, fundamental growth rose 4.56 per cent, while technology-focused strategies grew 4.39 per cent. Other equity hedge fund sub-strategies – including market neutral, multi-strategy and healthcare-focused funds - edged into positive territory, with only quantitative directional managers, which dropped 0.46 per cent last month, in the red.

Macro hedge funds - which trade on macroeconomic trends by trading interest rates, currencies, commodities, and equities, among other things – rose 3.64 per cent in February. The sector, as measured by HFR’s Macro (Total) Index, is up 3.81 per cent YTD. Among the best-performing macro hedge fund strategies last month were systematic diversified funds (4.45 per cent), commodities (4.06 per cent), and multi-strategy (3.15 per cent) funds.

Event driven hedge funds – which include special situations, distressed, activist, and arbitrage strategies – spiked 3.59 per cent in February, driving year-to-date returns to almost 6 per cent.

Here, activist hedge funds topped the table, growing 8.27 per cent last month, and are up 6.83 per cent since the start of 2021. Special situations managers advanced 4.11 per cent in February, and 7.29 per cent YTD. Credit arbitrage, distressed, and multi-strategy event driven hedge funds each grew more than 2 per cent for the month.

Relative value hedge funds – tracked by the fixed income-based HFRI Relative Value (Total) Index – returned 2.32 per cent in February, to put their year-to-date performance up 3.53 per cent. All other sub-strategies were up, with yield alternatives-focused strategies rising 6.27 per cent, and convertible arbitrage, multi-strategy, and volatility funds each advancing more than 2 per cent. 

Meanwhile, digital assets-focused hedge funds continued their advance last month, with the HFR Blockchain Composite Index and HFR Cryptocurrency Index each soaring some 30 per cent in February.

“New stimulus measures, increasing vaccinations, and uncertainty with regards to immigration and energy policy have shifted macroeconomic and geopolitical volatility to include not only the single stock or asset trends from concentrated, increased retail trading but also cryptocurrency trading, energy exposure and interest rate and inflation sensitivity,” Heinz said.

“Institutional investors are likely to continue expanding allocations to leading hedge fund managers as a mechanism to gain specialised exposure to these and other powerful trends through mid-2021.”