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Macro hedge funds gain as geopolitical risk surges

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Macro hedge funds led industry-wide gains in February, extending the strong start to 2022 by again posting negatively-correlated gains as financial market volatility surged across equity, fixed income, commodity, and currency markets as Russia invaded Ukraine.

Macro hedge funds led industry-wide gains in February, extending the strong start to 2022 by again posting negatively-correlated gains as financial market volatility surged across equity, fixed income, commodity, and currency markets as Russia invaded Ukraine.

The HFRI 500 Macro Index surged +2.9 per cent in February, extending the 2022 gain to +4.75 per cent, with strong contributions from Commodity, Fundamental Discretionary and Quantitative, trend-following strategies. The investable HFRI 500 Fund Weighted Composite Index advanced +1.2 per cent for the month, topping the decline of the Nasdaq by 470 basis points. The HFRI Fund Weighted Composite Index (FWC) also gained +0.6 per cent in February, according to data released today by HFR, the established global leader in the indexation, analysis and research of the global hedge fund industry.

The performance dispersion of the underlying HFRI index constituents narrowed in February, with the top decile of the HFRI gaining an average of +9.0 per cent, while the bottom decile declined by an average of -5.8 per cent for the month, representing a top-bottom dispersion of 14.8 per cent. Through the first two months of the year, the top decile of the HFRI has surged an average of +14.1 per cent, while the bottom decile has declined by an average of -14.4 per cent.

Macro strategies again posted strong, negatively-correlated gains for the month across Commodity, Discretionary, and Quantitative strategies, as financial market volatility surged; the investable HFRI 500 Macro Index advanced +2.9 per cent, while the HFRI Macro (Total) Index gained +2.1 per cent for the month. Macro sub-strategy gains were led by the investable HFRI 500 Macro: Commodity Index, which surged +6.3 per cent in February as commodities spiked on supply disruptions tied to Russian invasion of Ukraine; while the HFRI 500 Macro: Discretionary Thematic Index advanced +3.3 per cent for the month. Quantitative, trend-following Macro sub-strategies also gained in February, with the HFRI 500 Macro: Systematic Diversified Index adding +2.85 per cent. Emerging Markets hedge fund performance partially offset industry-wide gains, with the HFRI Emerging Markets Index falling by -1.6 percent; the volatile HFRI EM: Russia/Eastern Europe Index declined -31.2 per cent.

Event-Driven strategies, which often focus on out-of-favour, deep value equity exposures and speculation on M&A situations, also advanced in February led by higher beta Distressed and Merger Arbitrage strategies. The investable HFRI 500 Event-Driven Index gained +0.5 per cent, while the HFRI Event-Driven (Total) Index posted a narrow decline of -0.02 per cent for the month. ED sub-strategy gains were led by the HFRI 500 ED: Distressed Index, which advanced +1.8 per cent in February, while the HFRI 500 ED: Merger Arbitrage Index added +1.1 per cent.

Equity Hedge funds, which invest long and short across specialised sub-strategies, also posted a gain for the month, with the investable HFRI 500 Equity Hedge Index advancing +0.5 per cent, topping the decline of the Nasdaq Composite Index by 400 bps; the HFRI Equity Hedge (Total) Index added +0.1 per cent. EH Sub-strategy performance was led by the HFRI EH: Energy/Basic Materials Index, which surged +3.9 per cent, while the HFRI EH: Multi-Strategy Index added +0.9 per cent. These gains were partially offset by losses in the HFRI EH: Quantitative Directional Index, which fell -1.6 per cent in February.

Fixed income-based, interest rate-sensitive strategies posted mixed performance for the month, with gains in yield alternative funds offsetting narrow declines across other sub-strategies. Both the investable HFRI 500 Relative Value Index and the HFRI Relative Value (Total) Index advanced +0.4 per cent in February. Sub-strategy performance was led by the HFRI RV: Yield Alternative Index, which gained +1.5 per cent, while the HFRI RV: Volatility Index returned +1.2 per cent. These gains were partially offset by declines in the HFRI RV: FI-Sovereign Index, which fell -1.1 per cent.

Risk Premia strategies posted mixed performance in February as strong momentum drove gains across Multi-Asset and Commodity exposures. The HFR BSRP Multi-Asset Index surged +5.6 per cent for the month, while the HFRI BSRP Commodity Index gained +2.43 per cent. These gains were partially offset by losses in the HFR BSRP Rates Index, which fell -1.65 per cent. The HFRX Absolute Return Index posted a narrow decline of -0.03 per cent in February as the HFRX Equity Hedge Index gained +0.36 per cent.

The HFRI Diversity Index posted a narrow loss of -0.2 per cent in February, while the HFRI Women Index gained +0.8 per cent.

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