Hedge funds concluded a challenging 2011 with a decline in December, as the HFRI Fund Weighted Composite Index declined by 0.18 per cent, bringing full year 2011 performance to -4.8 per cent, according to data released today by HFR (Hedge Fund Research, Inc).
The decline for 2011 marks only the third calendar year decline since HFR’s index performance inception in 1990, but is the second decline in the last four years. Hedge funds produced a gain of 1.3 per cent in 4Q11, following a sharp decline of 6.7 per cent in the volatile 3Q; hedge funds gained 0.77 per cent in 1H11.
Two of the four strategy areas ended 2011 with gains in December, including Macro (+0.16 per cent) and Relative Value Arbitrage (+0.50 per cent) strategies; Fixed Income-based Relative Value was the only strategy area of positive performance for full-year 2011, gaining 0.55 per cent, while Macro declined by 3.6 per cent. Event Driven posted a narrow decline of 0.01 per cent in December and 2.65 per cent for 2011.
Equity Hedge strategies were the weakest area of performance for both December and 2011, posting a decline of 0.66 per cent in December, and concluding 2011 with a decline of 8.0 per cent. Performance of Equity Hedge was undermined by weakness in Energy/Basic Materials, Emerging Markets and Fundamental Growth, which posted full-year declines of 16.75, 12.9 and 12.6 per cent, respectively. Partially offsetting these declines, certain Equity Hedge sub-strategies posted 2011 gains, including Technology/Healthcare (+1.14 per cent) and Short Bias (+1.0).
“Volatile and unpredictable market dynamics throughout the year created a challenging environment for hedge funds in 2011, with aggregate losses across currency, commodity, Emerging Markets and equity strategies related to the European currency and sovereign debt crisis,” says Kenneth J Heinz (pictured), President of HFR. “Risk-off trades dominated 2011, creating challenges for convergence oriented funds, while contributing to gains across fixed income and certain low net exposure hedged strategies. After a challenging 3Q, hedge funds adapted strategies to this continuing macro-volatility dynamic in 4Q in anticipation of this environment persisting into early 2012.”
