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Hedge funds surge in January as volatility builds

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Hedge funds surged at the start of 2018 as equity markets turned in the strongest January since 1997, despite equity, currency and fixed income market volatility building into month-end.

The HFRI Fund Weighted Composite Index gained 2.8 per cent for the month, the strongest monthly return since December 2010 and the best January return since 2006. The gain extended the streak of consecutive monthly gains to 15 and lifted the record Index Value to 14,465, according to data released today by HFR, the established global leader in the indexation, analysis and research of the global hedge fund industry.
While all main strategies advanced for the month, industry performance was led by Macro strategies, with the HFRI Macro (Total) Index climbing 3.7 per cent, the best monthly gain since February 2008. Macro sub-strategy performance was led by quantitative, trend-following CTA strategies, with the HFRI Macro: Systematic Diversified Index vaulting 4.8 per cent, the strongest return since October 2008. Fundamental Macro also advanced for the month, as the HFRI Macro: Discretionary Thematic Index gained +.6 per cent, while the HFR Macro: Multi-Strategy Index added 3.4 per cent.
Equity Hedge funds also surged in January, with the HFRI Equity Hedge (Total) Index advancing +3.0 per cent, led by Technology and Emerging Markets exposures. The HFRI EH: Technology Index gained +5.9 per cent for the month, the best performance since Index inception in 2008. The HFRI Emerging Markets (Total) Index jumped 5.1 per cent in January, led by the Latin America and Russia sub-indices, which gained 7.2 and 5.9, respectively.
Event-Driven (ED) strategies advanced to start the year, with the HFRI Event-Driven (Total) Index adding 1.6 per cent in January. ED sub-strategy performance was led by equity market-sensitive special situations exposures, with the HFRI ED: Special Situations Index gaining 2.7 per cent. Credit-sensitive arbitrage funds also gained with the HFRI ED: Credit Arbitrage Index up 1.7 per cent.
Fixed income-based Relative Value Arbitrage funds also gained to begin 2018 as US interest rates increased, as the HFRI Relative Value (Total) Index advanced 1.5 per cent, led by Yield Alternatives funds, which gained 2.3 per cent, and Convertible Arbitrage funds, which added 2.1 per cent. Risk Parity funds posted a narrow gain for January, as equities surged, yields increased, commodities gained and the US dollar fell, with the HFR Risk Parity Vol 10 Index adding 0.5 per cent for the month.
Volatile Cryptocurrency and Blockchain funds fell in January even as cryptocurrencies fell sharply, with the HFR Blockchain Index falling 9.2 per cent. As reported previously, the HFR Blockchain Index surged 2,798 per cent in 2017.
“After a historic year in 2017, hedge funds began 2018 extending strong gains, even as realised and implied volatility associated with global equities, currencies (including cryptocurrencies), commodities, fixed income and the outlook for global inflation all increased,” says Kenneth J Heinz (pictured), President of HFR. “Hedge funds will continue to navigate these volatile markets and asset classes in 2018, monetising opportunities generated by US tax cuts and infrastructure spending, US monetary policy, and corporate M&A and special situations. These themes are likely to drive performance and industry growth in 2018.”

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