Hedge funds down 0.5% in February

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Global hedge funds saw a 0.5% decline in February according to the performance of the HFRI Fund Weighted Composite Index, on the back of weak equities performance, ongoing generational inflation, higher interest rates and the possibility of a recession in 2023.

Equity hedge funds, which invest long and short across specialised sub-strategies, declined over the month but still outperformed equity market declines for February, with performance led by Market Neutral and Technology sub-strategies. The investable HFRI 500 Equity Hedge Index declined -1.5% (estimated) in February, while the HFRI Equity Hedge (Total) Index fell -1.3%. EH sub-strategy declines were led by the HFRI EH: Energy/Basic Materials Index, which fell -2.7%, while the HFRI 500 EH: Fundamental Growth Index declined -2.6%.
On the heels of a strong +2.2% return in January, the investable HFRI 500 Fund Weighted Composite Index posted a decline of -0.38% (estimated) in February, with performance gains led by quantitative, trend-following Macro strategies. 

The HFRI Asset Weighted Composite Index, a composite comprised of the same constituents as the FWC but weighted by fund assets, gained +1.1% in February. The top decile of the HFRI FWC constituents advanced by an average of +4.5% in February, while the bottom decile fell by an average of -6.2%, representing a top/bottom dispersion of only 10.7% for the month. Approximately half of hedge funds posted positive performance in February.

Uncorrelated Macro led strategy performance in February, with the investable HFRI 400 (US) Macro Index advancing +0.56% (estimated) for the month, while the HFRI Macro (Total) Index added +0.2%. Gains in quantitative, trend-following CTA strategies offset declines in Fundamental Discretionary Macro, as the HFRI 500 Trend Following Index advanced +0.9%, while the HFRI Macro: Discretionary Thematic Index fell -0.06%.

Event-Driven strategies, which often focus on out-of-favor, deep value equity exposures and speculation on M&A situations, also posted gains in February with the investable HFRI 400 (US) Event-Driven Index gaining +0.64% (estimated), while the HFRI Event-Driven (Total) Index added +0.1%. Event Driven sub-strategy performance was led by the HFRI 500 ED: Special Situations Index, which gained +1.7%, while the HFRI ED: Credit Arbitrage Index added +0.5% for the month.

Fixed income-based, interest rate-sensitive strategies produced mixed performance in February, as investors positioned for continuation of generational inflationary pressures and interest rate increases; the investable the HFRI 500 Relative Value Index declined -0.14% (estimated), while the HFRI Relative Value (Total) Index gained +0.1% for the month. Leading sub-strategy performance, the HFRI 500 RV: Volatility Index jumped +0.8% in February, while the HFRI 500 RV: Fixed Income-Sovereign Index added +0.2%.

Liquid Alternative UCITS strategies declined in February, with the HFRX Absolute Return posted a narrow decline of -0.17%, while the HFRX Global Index fell -0.47%. HFRX sub-strategy performance was led by the HFRX Macro/CTA Index, which gained +0.5%, while declines were led by the HFRX Event Driven Index, which fell -0.94% for the month. The HFRI Diversity Index declined -0.8% in February, while the HFRI Women Index fell -1.0%.

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