Hedge funds extended their run of positive performance in February, with macro and equity hedge strategies leading gains as markets navigated rising geopolitical tensions, sector disruption from AI and mounting pressure in private credit, according to HFR.
The HFR HFRI Fund Weighted Composite Index advanced 1.9 per cent during the month, marking the tenth consecutive monthly gain. Performance was led by trend-following macro strategies, particularly those focused on commodities and energy, as volatility increased toward the end of the month ahead of the military conflict in Iran that began on 28 February.
According to HFR president Kenneth J Heinz, markets swung repeatedly between risk-on and risk-off sentiment during February before ending the month with a strong shift toward defensive positioning.
“Financial market risk sentiment oscillated between risk on and off throughout February before ending the month on a strong risk-off trend,” Heinz said, adding that hedge funds generated strong, often negatively correlated returns as volatility increased across asset classes.
Macro strategies were the strongest performers. The HFRI Macro (Total) Index rose 3.0 per cent in February, building on January’s 4.15 per cent gain – its strongest monthly return since 2003. The index has now posted nine consecutive months of positive performance, rising 17.9 per cent over that period.
Within the strategy, commodity-focused managers led gains. The HFRI Macro: Commodity Index climbed 4.1 per cent in February, while the HFRI Macro: Systematic Diversified Index gained 3.7 per cent. The HFRI Macro (Asset Weighted) Index added 1.4 per cent during the month. In contrast, the HFR Cryptocurrency Index fell 10.6 per cent, its largest decline since February 2025.
Equity hedge managers also delivered strong returns as they navigated rapid shifts in market sentiment and sector rotation. The HFRI Equity Hedge (Total) Index rose 2.35 per cent, supported by exposures to energy, healthcare and fundamental equity strategies.
The HFRI EH: Energy/Basic Materials Index was the best-performing equity hedge sub-strategy, gaining 4.6 per cent. The HFRI EH: Healthcare Index added 3.7 per cent, while the HFRI EH: Fundamental Growth Index rose 3.2 per cent and the HFRI EH: Fundamental Value Index gained 2.1 per cent.
Relative value strategies posted more modest gains. The HFRI Relative Value (Total) Index returned 0.7 per cent in February as falling interest rates supported fixed-income related strategies. The HFRI RV: Yield Alternatives Index gained 2.1 per cent, while the HFRI RV: Volatility Index added 1.2 per cent.
Event-driven funds also finished the month in positive territory. The HFRI Event-Driven (Total) Index gained 0.3 per cent, led by the HFRI ED: Distressed Index, which rose 1.9 per cent, and the HFRI ED: Special Situations Index, which added 0.9 per cent.
Performance among hedge funds remained widely dispersed. The top decile of managers tracked by the HFRI Fund Weighted Composite Index gained an average of 10.0 per cent in February, while the bottom decile declined 4.7 per cent, producing a 14.7 per cent performance spread for the month.
Over the past 12 months to the end of February 2026, the top decile of hedge funds gained 109.5 per cent on average, compared with a 9.5 per cent decline for the bottom decile. Approximately 75 per cent of hedge funds posted positive performance in February.
However, volatility has continued into early March as the conflict in Iran escalates. HFR’s HFRX Global Index has fallen 1.2 per cent month-to-date through 4 March, highlighting the impact of heightened geopolitical uncertainty on financial markets.
Heinz said the current environment of rising geopolitical risk and elevated volatility could continue to create opportunities for hedge fund managers able to navigate rapidly shifting market conditions.
“With volatility and risk likely to continue in coming weeks, investors interested in opportunistic, defensive exposure to these powerful trends are likely to allocate to hedge fund managers which have demonstrated strong performance through high risk and high volatility trading environments,” he said.
