Hedge funds extended gains in November with the investable HFRI 500 Fund Weighted Composite Index advancing 0.8% for the month, as directional equity hedge and interest rate sensitive relative value arbitrage strategies led the way.
- Hedge funds extend Q4 gains in November despite crypto-induced market volatility
- Performance dispersion widens slightly to 21.5% from 18.6% in October
- Macro strategies post first decline since July, falling 3.7% for the month
Hedge funds extended gains in November with the investable HFRI 500 Fund Weighted Composite Index advancing 0.8% for the month, as directional equity hedge and interest rate sensitive relative value arbitrage strategies led the way.
The HFRI Fund Weighted Composite Index advanced 0.95% in November, cutting its YTD decline to 4.1%.
Dispersion in hedge fund performance meanwhile, widened slightly in November, as the top decile of the HFRI constituents advanced by an average of 12.8%, while the bottom decile fell by an average of 8.7%, representing a top/bottom dispersion of 21.5%. By comparison, the top/bottom dispersion was 18.6% in October.
Through the first eleven months of the year, the top decile of the HFRI has surged an average of 40.1%, while the bottom decile has declined by an average of 30.1%, representing a top/bottom dispersion of 70.2%. Approximately two-thirds of hedge funds posted positive performance in November.
Equity hedge funds, which invest long and short across specialised sub-strategies, led strategy gains in November, with equities advancing despite volatility across crypto, interest rates and currencies. The investable HFRI 500 Equity Hedge Index jumped 3.8% for the month, while the HFRI Equity Hedge (Total) Index gained 2.7%. EH sub-strategy performance was led by the HFRI 500 EH: Healthcare Index, which surged 7.15%, while the HFRI 500 EH: Quantitative Directional Index jumped 5.4% for the month.
The HFR Cryptocurrency Index meanwhile fell 13.5% in November, as cryptocurrencies plunged on the collapse of the FTX exchange platform, as well as other cryptocurrency problems. The Index is now down 52.5% YTD through November, having gained 240% in 2021.
Fixed income-based, interest rate-sensitive strategies also advanced in November, with interest rates posting sharp declines as generational inflationary pressures showed early signs of easing, and investors positioned for the US Federal Reserve to moderate the pace of future interest rate increases. The investable HFRI 500 Relative Value Index gained 1.65% for the month, while the HFRI Relative Value (Total) Index added 1.1%. The HFRI 500 RV: Fixed Income-Sovereign Index gained 6.1% for the month, while the HFRI 500 RV: FI-Asset Backed Index added 3.55%.
Led by activist and special situations exposures, event-driven strategies, which often focus on out-of-favour, deep value equity exposures and speculation on M&A situations, also gained in November, with the investable HFRI 500 Event-Driven Index advancing 1.1%, while the HFRI Event-Driven (Total) Index gained 0.8%. ED sub-strategy performance was driven by the HFRI 500 ED: Distressed/Restructuring Index, which surged 7.2% for the month, while the HFRI 500 ED: Activist Index jumped 4.2%.
Macro strategies posted their first decline since July, paring strong YTD performance on weakness in quantitative, trend-following strategies. The investable HFRI 500 Macro Index fell 3.7% for the month, cutting YTD performance to 13.1%, while the HFRI Macro (Total) Index fell 2.7% in November.
Macro sub-strategy declines were led by the HFRI Macro: Systematic Diversified Index, which fell 5.2% for the month, while the HFRI Macro: Active Trading Index fell 4.6%. These declines were partially offset by the HFRI Macro: Discretionary Thematic Index, which gained 1.2% for the month.
Despite a decline in November, the HFRI 500 Macro: Commodity Index still leads all sub-strategies through the first eleven months of the year, with a gain of 34%.
Risk Parity strategies posted strong gains in November, with the HFR Risk Parity Vol 15 Index surging 8.2%. Liquid Alternative UCITS strategies also advanced over the month, with the HFRI-I Liquid Alternatives Index gaining 1.8%, led by the HFRI-I Equity Hedge Index, which jumped 2.7%, while the HFRI-I Relative Value Index added 2.4%. Bank Systematic Risk Premia strategies also gained for the month led by the HFR BSRP Rates Index which surged 5.8%, while the HFR BSRP Index Commodity Index gained 2.6%. The HFRI Diversity Index was up 2.2% in November, while the HFRI Women Index advanced 3.0%.
Key Takeaway | Funds delivering strong performance through the volatility of 2022 can expect to continue attracting investor attention in 2023 – potentially from institutions.
