HFR: Energy, Quant Strategies Lead Index to Fourth Annual Decline Since 1990

Jan 8 2016 | 7:00pm ET

Hedge funds concluded a volatile, turbulent year in financial markets with declines in December, according to new data from industry benchmark provider Hedge Fund Research.

Oscillating between positive and negative performance throughout the year, the HFRI Fund Weighted Composite Index fell -0.85% in December and ended the year down 0.85%. This was only the fourth calendar year decline in hedge fund performance since 1990, according to HFR. Despite the decline, an estimated 55% of all hedge funds posted gains for 2015. 

Equity Hedge strategies outperformed U.S. equities in December, with steep losses in energy-focused strategies partially offset by gains in market neutral ones. The HFRI Equity Hedge Index fell -0.6% in the month and -0.4% for the year, while the HFRI Equity Market Neutral Index gained +0.7%, the HFRI Technology/Healthcare Index rose +6.0% and the volatile HFRI Energy/Basic Materials Index fell -2.4% and -13% in December and full-year 2015, respectively.

In fixed income, the HFRI Relative Value Arbitrage Index posted a narrow -0.2% drop last year after falling -0.85% in December, while the HFRI Volatility Index in both advancing +0.5% and +7%, respectively, for the month and year. Yield Alternative strategies were the laggard of relative value sub-strategies, as the HFRI Yield Alternatives Index posted declines of -4.6% and -16.5% in December and FY 2015, respectively, and the HFRI Credit Index, comprised of all alternative credit strategies, fell -1% in the month and -1.1% for the year.

Event Driven strategies also fell both last month and for the full year, though sub-strategy performance in this sector was bifurcated between credit- and equity-sensitive strategies and non-sensitive strategies. The HFRI Event Driven Index posted declines of -0.4% and -2.9%, respectively, in December and FY 2015. The HFRI Distressed Index, in particular, was hit hard, falling -2.4%and -8.4%, respectively - the worst calendar year performance since 2008. 

Alternatively, the HFRI Merger Arbitrage Index gained +1.2% in December and +3.4% for the year, the strongest annual performance since 2013. The HFRI Activist Index lost -0.6% in December, though it gained +1.5% for 2015. Notable is this index’s recovery from a 4-month, intra-year drawdown of over -9%.

Macro strategies also declined in December and the full year. The HFRI Macro Index fell -1.4% in December, bringing FY 2015 performance to a decline of -1.3%. The HFRI Currency Index led Macro sub-strategy performance for the year, gaining +0.3% in December and +1.4% for 2015. The HFRI Macro: Systematic Diversified Index led Macro sub-strategy declines in December and FY 2015, falling -2.4 and -2.3%, respectively.

“Low interest rates, steep commodity losses and intense equity market volatility contributed to a challenging environment in 2015, resulting in a wide dispersion between the best and worst performing funds, and a narrow performance decline for the overall hedge fund industry,” stated HFR’s Kenneth Heinz. 

Concurrent with the release of the December and 2015 annual numbers, HFR announced the launch HFRI Asset Weighted Index family, comprised of a broad-based composite of all strategies, as well as the 4 main hedge fund strategies.

“With some variability, the capital-weighted, aggregate industry performance has shown a premium to the equally-weighted performance, resulting in capital-weighted gains across equity- and fixed income-based hedge funds for the year,” added Heinz.

The HFRI Asset Weighted Index, which is the asset-weighted version of the company's benchmark HFRI Fund Weighted Composite Index, lost -1.3% in December and -0.4% for 2015. Since 2008, the HFRI Asset Weighted Index has averaged an annualized gain of +4.6%, outperforming the HFRI Fund Weighted Composite Index by +1.5% on an annualized basis.

Established in 1992, HFR produces the HFRI, HFRX and HFRU Indices, the industry’s most widely used benchmarks of global hedge fund performance. HFR calculates over 100 indices of hedge fund performance ranging from industry-aggregate levels down to specific, niche areas of sub-strategy and regional investment focus.

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