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Macro hedge funds lead February gains as HFRI tops equity markets

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Hedge funds posted gains in February, outperforming US equities for the third consecutive month, as equity, credit and energy markets traded in a wide and volatile intra-month range, according to data released today by HFR.

The HFRI Fund Weighted Composite Index (FWC) advanced +0.5 per cent for the month, bringing the FWC to an Index Value of 12040.78, with gains again led by Macro and quantitative, trend-following CTA strategies. February represents the strongest FWC monthly gain since October 2015 and brings the YTD performance to -2.0 per cent, leading equity benchmarks across US, Europe, Asia and Emerging Markets. The HFRI Asset Weighted Composite Index declined -0.9 per cent for the month, bringing YTD performance to a decline of -2.6 per cent.
February performance was led by Macro strategies as equities, fixed income, commodities and currencies traded in wide intra-month ranges, with the HFRI Macro Index posting a gain of +1.9 per cent, bringing YTD performance to +3.1 per cent. The HFRI Macro: Systematic Diversified Index added +3.0 per cent in February, bringing YTD performance to +5.6 per cent, as oil reversed steep losses, and the British Pound Sterling fell sharply against the US Dollar and Japanese Yen. Other Macro sub-strategies also added strong gains for February, with the HFRI Active Trading and Multi-Strategy Indices gaining +2.8 and +1.4 per cent, respectively, while the HFRI Currency Index advanced +1.4. The HFRI Emerging Markets Index posted a narrow gain of +0.3 per cent for the month, only the 2nd monthly gain in the trailing 10 months
Fixed income-based strategies posted a narrow decline for February, as high yield credit recovered steep intra-month losses and US yields fell slightly. The HFRI Relative Value Index posted a modest decline of -0.01 per cent for the month, with gains in Volatility and Sovereign sub-strategies offset by declines in Asset Backed exposures. The HFRI RV: Volatility Index gained +1.1 per cent, reversing a decline from January, and the HFRI RV: Sovereign Index added +0.3 per cent, as the government of Argentina negotiated a settlement with bondholders, including several large hedge funds. The HFRI RV: Asset Backed Index fell -1.2 per cent in February, dropping YTD performance to -2.5 per cent.
Equity and Event Driven strategies also posted declines for the month on mixed sub-strategy performance, navigating intense volatility across Technology, Financials, Energy and Pharmaceutical sectors, including Valeant. The HFRI Equity Hedge (EH) Index fell -0.15 per cent in February, while the HFRI Event Driven Index declined -0.3 per cent. Sub-strategy performance was led by short selling funds, with the HFRI EH: Short Bias Index gaining +5.4 per cent, while the HFRI EH: Energy/Basic Materials Index advanced +2.3 per cent and the HFRI ED: Merger Arbitrage Index added +0.6 per cent. Offsetting these gains, the HFRI ED: Activist Index declined -1.3 per cent for the month, while the HFRI EH: Technology/Healthcare Index fell -1.8 per cent, extending the YTD loss to -8.5 per cent.
“The volatile and uncertain current market environment, dominated by both powerful trends and sharp reversals, has shifted to favor Macro strategies and specifically quantitative, trend-following CTA strategies,” says Kenneth J Heinz (pictured), President of HFR. “February was significant as it clearly demonstrated performance generation across a wide continuum of assets, ranging broadly from fixed income to currencies to natural gas to agriculturals, and demonstrated the ability to generate gains on both long and short positions. Investors who have allocated across a range of hedge fund strategies are likely to benefit from these and other uncorrelated exposures as macroeconomic and geopolitical risk remain elevated through mid-2016.”

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