HFR: HFRI Index Nears Record in November As Election Lifts Hedge Funds

Dec 8 2016 | 8:09pm ET

The post-election movements in equity and bond markets lifted hedge funds nearly across the board in November, bringing Hedge Fund Research’s broadest benchmark index close to record levels.

HFR’s HFRI Fund Weighted Composite Index gained +0.9 percent in the month, with the index value reaching 12,841.95, the highest level since May 2015 and the second-highest since inception in 1990. 

The November advance represents the eighth monthly gain in the past nine months for the measure, and brings YTD performance to +4.6 percent, HFR noted. The company’s HFRI Asset Weighted Index rose +1.2 percent in November, the benchmark’s fifth consecutive monthly advance and also the eighth monthly gain in the past nine months. 

HFRI indices are broadly constructed indices designed to capture the breadth of hedge fund performance trends across all strategies and regions. HFR’s other broad hedge fund measure, the HFRX Global Hedge Fund Index, gained +0.87 percent for November.

Key performance highlights for HFRI family of indices:

  • Event-Driven hedge funds led strategy performance for the month, as U.S. equities rallied to record levels while US government bond yields rose sharply. The HFRI Event-Driven (Total) Index surged +2.2 percent, the fifth consecutive monthly gain, bringing YTD performance to +9.4 percent, leading all main strategies. Sub-strategy performance was led by a strong recovery in activist funds, with the HFRI ED: Activist Index climbing +6.3 percent, the largest monthly increase since November 2012 and bringing the YTD return to +8.8 percent. The HFRI ED: Multi-Strategy Index gained +2.9 percent in November, while the HFRI ED: Distressed Index added +1.6 percent, leading all ED sub-strategies YTD with a net return of +12.8 percent. 
  • Equity Hedge strategies also posted a strong gain for the month as U.S. small cap and energy commodities surged. The HFRI Equity Hedge (Total) Index advanced +1.5 percent, while sub-strategy performance was led by the HFRI EH: Sector-Energy/Basic Materials Index up +6.2 percent, the strongest gain since April, bringing YTD performance to +22.8 percent, the leading area of sub-strategy performance industry-wide. 
  • Fixed income-based Relative Value Arbitrage strategies also gained despite the sharp post-election increase in U.S. government bond yields, with the HFRI Relative Value (Total) Index advancing +0.4 percent, the ninth consecutive monthly gain, bringing YTD performance to +6.4 percent. The HFRI RV: Yield Alternatives Index led this segment’s sub-strategy performance in November with a gain of +2.4 percent, bringing YTD return to +14.7 percent. 
  • On the negative side, macro hedge funds posted declines in November.  The HFRI Macro (Total) Index fell -0.2 percent, paring YTD gains to +0.3 percent. Fundamental, commodity, and quantitative trend-following CTA Macro sub-strategies were also down, with the HFRI Discretionary Thematic Index falling -1.7 percent while the HFRI Systematic Diversified/CTA Index was off -0.5 percent. The HFRI Macro: Multi-Strategy Index partially offset these losses with a gain of +2.4 percent. 

"Hedge funds advanced to a near record level in November on the surprise Trump victory despite the sharp rise in yields and U.S. Dollar strength, as US equities also rallied to record highs on expectations of a new administration focused on economic growth and reduced regulation," stated Kenneth Heinz, president of HFR.

"While few funds may have predicted the election result, it was a true inflection point, with hedge fund performance benefitting from post-election fundamental mean-reversion and convergence predicated on gradually normalizing risk-free rates and a pro-business agenda for the coming term," Heinz said.  

“Hedge funds which have tactically adjusted their investment positions for this environment are likely to lead industry performance and growth into 2017,"  he added.

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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