Hedge funds posted their largest losses since March 2020 as the US-Israel conflict with Iran triggered a spike in oil prices and an historic surge in volatility, coupled with steep declines across equity and fixed income markets, according to data from HFR.
The HFRI Fund Weighted Composite Index® (FWC) fell 2.8% last month, marking the largest single-month drop since June 2022 and paring the first-quarter gain to 0.9%. Equity Hedge and Emerging Markets-focused funds led losses, while long volatility strategies benefited from the spike in market turbulence, with the HFRI Long Volatility Index up 2.4%.
Equity Hedge strategies were particularly affected, with the HFRI Equity Hedge (Total) Index down 4.3%, the sharpest decline since March 2020. Sub-strategy losses were concentrated in Fundamental Growth (-6.8%) and Multi-Strategy (-6.4%) funds, while Energy, Healthcare, and Market Neutral strategies saw smaller declines.
Fixed income-relative value funds posted mixed results as investors adjusted to higher expected interest rates. The HFRI Relative Value (Total) Index slipped 0.7%, though volatility-focused relative value funds gained 2.6%. Sovereign and convertible arbitrage sub-strategies were the largest laggards.
Macro funds also faced challenges, with the HFRI Macro (Total) Index down 2.35% in March, despite gaining 4.4% for the quarter. Discretionary thematic and multi-strategy macro approaches were most impacted, while systematic diversified and currency/oil positions offered partial offsets.
Event-driven funds saw moderate declines, with activist and special situations strategies down 4.9% and 3.5% respectively, while distressed and merger arbitrage strategies posted small gains. For the quarter, event-driven funds were effectively flat.
Kenneth Heinz, HFR President, said: “March’s volatility reflected daily shocks and geopolitical developments. While growth and equity strategies bore the brunt of losses, hedge funds remain tactically positioned to provide liquidity and capitalise on dislocations created by extreme market conditions.”
