Hedge funds posted a narrow decline in March, with the HFRI Fund Weighted Composite Index falling 0.3%, as losses in macro and CTA strategies offset gains in relative value Arbitrage strategies, according to hedge fund data provider HFR.
For the first quarter, the HFRI FWC gained 1.1%, with a strong February gain offsetting declines in both January and March.
March gains were led by fixed income based relative value arbitrage strategies, with the HFRI Relative Value Index gaining 0.6% for the month and 2.4% for Q1, leading all hedge fund strategies in the quarter. With positive performance in each month of the quarter, relative value arbitrage strategies have posted gains in 55 of 63 months since January 2009, with an average annualized gain of 10.7% over that period. While all sub-strategies posted gains for March, gains were led by sovereign and asset backed Strategies, with the HFRI RV: Sovereign Index gaining 1.1% and the HFRI RV: Asset Backed Index up 1.3%
The HFRI RV: Yield Alternative Index gained 1.0% for the month and 3.7% for Q1, while HFRI RV: Volatility Index gained 0.5% in March and 2% for Q1.
Event driven strategies extended their strong 2013 performance through Q1 of this year, despite posting a narrow decline for March. The HFRI Event Driven Index declined 0.1% in March but gained 1.8% for the quarter, led by a continuation of the powerful M&A, IPO and shareholder activist trends that dominated 2013. The HFRI ED: Activist Index gained 2.1% in March and 3.3% for Q1, the leading area of ED performance, while the HFRI ED: Distressed Index and Credit Arbitrage strategies gained 2.3 and 2.7%, respectively, for Q1. The HFRI: ED Special Situations Index gained 1.7% for Q1, despite posting a decline of 0.5% for March.
The HFRI Equity Hedge Index posted gain of 1.4% for Q1 despite a decline of 0.2% for March. Most equity hedge sub-strategies were narrowly changed for March, led by a gain of 0.3% for the HFRI EH: Energy/Basic Materials Index, while HFRI Quantitative Directional Index posted the weakest performance with a decline of 0.8%.
For the Q1, funds specializing in technology and energy led EH performance, with the HFRI EH: Technology/Healthcare Index gaining 5.7%, and the HFRI EH: Energy/Basic Materials Index up 6.0% for the quarter.
Macro strategies were the only area of hedge fund performance to post a decline for Q1, with a March drop of 1.1% for the HFRI Macro Index offsetting February gains and bringing first quarter performance to a decline of 0.5%. The HFRI Macro: Currency Index gained 0.74% for March, leading macro sub-strategy performance for the month, while HFRI Macro: Commodity Index led macro sub-strats for the first quarter with a gain of 2.4%.
Quantitative, trend following CTA strategies led declines for both the month and the quarter, with the HFRI Macro: Systematic Diversified/CTA Index falling 1.9% for March and 1.8% for Q1.
“Hedge funds posted gains for the first quarter, effectively navigating volatility from macroeconomic, geopolitical and corporate sources despite escalation of international tension regarding Russia’s annexation of Crimea and continued commitment by the US Federal Reserve to deliberate extraction of stimulus measures, impacting not only the US but the global economy,” said Kenneth Heinz, president of HFR. “The choppy financial market environment of Q1, 2014 contrasts sharply with the equity beta driven gains for 2013, contributing to an increased dispersion of performance and increased traction for hedge fund strategies offering low correlation to equity markets, including not only Event Driven and RV Arbitrage, but also Currency, Commodity, Volatility, and Technology strategies.”