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Hedge funds up 2.2% in November as inflation and interest rates fall

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Hedge fund performance jumped in November as economic data showed a welcome decline in inflation, resulting in falling bond yields, and surging equity and cryptocurrency markets, as investors positioned for the end of the Federal Reserve interest rate increasing cycle.

The HFRI Fund Weighted Composite Index finished the month up an estimated +2.2%, the strongest monthly gain since January 2023 and the fifth strongest return in the trailing three-year period. The HFRI 500 also advanced +1.8%, while the HFR Cryptocurrency Index jumped +8.2%, and the HFR Risk Parity Vol 15 Index surged +7.8%. Hedge funds focused on emerging markets also produced strong November performance, with the HFRI Emerging Markets (Total) Index gaining +3.6%, driven by the HFRI EM: Latin America Index, which surged +9.85% for the month.

Performance dispersion rose sharply in November, as the top decile of the HFRI FWC constituents advanced by an average of +12.9%, while the bottom decile fell by an average of -6.5%, representing a top/bottom dispersion of 19.4% for the month. By comparison, the top/bottom performance dispersion in October was 12.9%. Through the first eleven months of the year, the top decile of FWC constituents gained +30.9%, while the bottom decile declined -16.5%, representing a top/bottom dispersion of 47.4%. Nearly seventy% of hedge funds produced positive performance in November.

Equity Hedge funds, which invest long and short across specialised sub-strategies, led November strategy performance, with Quantitative Directional, Technology, Fundamental Value, and Healthcare leading EH sub-strategy gains. The HFRI 500 Equity Hedge Index jumped +4.3% (estimated) for the month, the strongest gain since February 2021, while the HFRI Equity Hedge (Total) Index also surged +4.1%. All EH sub-strategies posted gains for the month, led by the HFRI EH: Quantitative Directional Index, which vaulted +7.2%. Also producing strong performance, the HFRI EH: Fundamental Value Index jumped +4.8%, while the HFRI EH: Healthcare Index and HFRI EH: Technology Index each gained an estimated +4.6% in November.

Event-Driven strategies, which often focus on out-of-favour, deep value equity exposures and speculation on M&A situations, also surged in November as equities, credit and M&A all gained for the month, with the HFRI Event-Driven (Total) Index jumping +3.6%, the strongest monthly gain since February 2021. ED sub-strategy performance was driven by the HFRI ED: Activist Index, which surged +7.7%, and the HFRI ED: Special Situations Index, which jumped +4.45%. Also contributing to broad-based gains, the HFRI ED: Multi-Strategy Index advanced +3.1%.

Fixed income-based, interest rate-sensitive strategies also gained in November, as interest rates declined, and investors positioned as if the interest rate increasing cycle has concluded. The HFRI Relative Value (Total) Index advanced +1.5% (estimated) for the month, led by sovereign bond and multi-strategy exposures, with the HFRI RV: FI-Sovereign Index surging +4.1%, and the HFRI RV: Multi-Strategy jumping +2.9%. Also contributing to RVA sub-strategy gains, the HFRI RV: FI-Asset Backed Index added +1.8% for the month

After gaining through the volatile September/October equity market declines, Macro strategies declined in November as interest rates and commodities fell while risk tolerance increased, with the HFRI Macro (Total) Index falling -1.6% (estimated) for the month. Macro sub-strategy declines were led by quantitative, trend following CTA strategies, with the HFRI Macro: Systematic Diversified Index falling -3.5% in November. Partially offsetting these declines, HFRI Macro: Discretionary Thematic Index gained +1.5%, and the HFRI Macro: Active Trading Index advanced +1.2% for the month.

Liquid Alternative UCITS strategies produced gains in November, led by the HFRX Market Directional Index gaining +3.1%, while the HFRX Global Hedge Fund Index advanced +1.1%. Strategy gains were led by the HFRX Equity Hedge Index, which surged +2.93%, while the HFRX Event Driven Index advanced +1.39%.

The HFRI Diversity Index surged an estimated +5.4% in November, while the HFRI Women Index advanced +2.0%.

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