Global Outlook 2024 Report


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Fixed income strategies lead early 2024 hedge fund gains

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Hedge funds continued their end-of-year momentum into the first month of 2024 amid escalating geopolitical tensions, with fixed income-based strategies leading the way in terms of returns, according to performance data from HFR.

Despite Yemen and the Red Sea joining Gaza and Ukraine on the list of active conflicts, gains were seen across a wide range of strategies and sub-strategies as investors and managers positioned for interest rates to remain elevated through early 2024.

The HFRI Fund Weighted Composite Index (FWC) advanced an estimated 0.28% for the month, while the HFRI 500 FWC Index added 0.24%.

Performance dispersion declined in January, as the top decile of the HFRI FWC constituents advanced by an average of 6.06%, while the bottom decile fell by an average of 6.75%, representing a top/bottom dispersion of 12.81% for the month. By comparison, the top/bottom performance dispersion in December was 16.73%. In the trailing 12 months ending January 2024, the top decile of FWC constituents gained 31.9%, while the bottom decile declined 19.0%, representing a top/bottom dispersion of 50.9%. Approximately 60% of hedge funds produced positive performance in January.

Fixed income-based, interest rate-sensitive strategies led HFRI performance in January, as the economic outlook in the US continued to improve. The HFRI Relative Value (Total) Index advanced an estimated 0.62% for the month, led by the HFRI RV: FI-Corporate Index, which gained 1.14%, while the HFRI RV: FI-Convertible Arbitrage Index added an estimated 1.06% in January.

Equity hedge (EH) funds, which invest long and short across specialised sub-strategies, also gained in January, led by technology, healthcare, and market neutral exposures, as the HFRI Equity Hedge (Total) Index advanced 0.21% for the month. EH sub-strategy performance was led by the HFRI EH: Sector-Technology Index, which surged 3.16%, and the HFRI EH: Healthcare Index, which advanced 2.0% in January. Also producing strong performance, the categorically low volatility HFRI EH: Equity Market Neutral Index jumped 1.95% for the month.

Uncorrelated macro strategies also posted gains in January as interest rates rose on strong US economic data, with the HFRI Macro (Total) Index advancing 0.43% for the month. Macro sub-strategy gains were led by the HFRI Macro: Commodity Index, which advanced 1.36% in January, while the HFRI Macro: Multi-Strategy Index also added 1.25% for the month.

Event-driven (ED) strategies, which often focus on out-of-favour, deep value equity exposures and speculation on M&A situations, posted mixed performance in January with gains in credit arbitrage and special situations offset by declines in activist strategies; the HFRI Event-Driven (Total) Index declined 0.30% for the month. ED sub-strategy performance was led by the HFRI ED: Credit Arbitrage Index, which jumped 2.37%, while the HFRI ED: Special Situations Index added an estimated 0.52%. Offsetting these, the HFRI ED: Activist Index declined 2.24%, this after leading ED sub-strategy gains in 2023 with a gain of 18.1%.

Liquid alternative UCITS strategies also produced gains in January, led by the HFRX Absolute Return Index gaining 0.42% while the HFRX Global Index advanced 0.32%. Strategy gains were led by the HFRX Macro Index, which returned 1.2% in January, while the HFRX Equity Hedge Index advanced 0.66%.

The HFRI Diversity Index advanced an estimated 1.41% in January, while the HFRI Women Index added 1.33%.

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