HFRX: Hedge Funds Record Second Yearly Decline Since '98

Jan 10 2012 | 2:19pm ET

The HFRX Global Hedge Fund Index was down 0.42% in January, putting it down 8.87% for full year 2011—only the second calendar year decline since the index was established in 1998.

The 2011 results also constitute the second decline in the last four years.

The HFRX Absolute Return Index, which contains constituents with characteristically lower levels of directional exposure, declined 0.13% for December and 3.72% for 2011.

Relative value arbitrage strategies gained 0.11% in December, thanks to a 0.32% gain by convertible arbitrage funds and yield alternatives: energy infrastructure strategies. Fixed income-based multi-strategy, asset-backed and energy infrastructure sub-strategies all posted gains in 2011, with the HFRX RV: Multi Strategy Index gaining 0.05% for 2011.

Event driven and macro funds declined by 0.56% and 0.28% in December, bringing their full-year declines to 4.90% and 4.88%, respectively. Both macro systematic diversified and merger arbitrage strategies ended the month in the black, gaining 0.82% and 0.07%, respectively.

Equity hedge strategies turned in the worst performance for December, slipping 0.85%. This was partially offset by market neutral strategies, which gained 0.18% for the month. Short bias and technology/healthcare funds also contributed positively to hedge equity in 2011.

"Volatile and unpredictable market dynamics throughout the year created a challenging environment for hedge funds in 2011, with aggregate losses across currency, commodity, emerging markets and equity strategies related to the European currency and sovereign debt crisis," stated Kenneth J. Heinz, President of HFR. "Risk-off trades dominated 2011, creating challenges for convergence oriented funds, while contributing to gains across fixed income and certain low net exposure hedged strategies. After a challenging 3Q, hedge funds adapted strategies to this continuing macro-volatility dynamic in 4Q in anticipation of this environment persisting into early 2012."

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