Hedge fund performance falls in February

Mar 9 2018 | 2:21pm ET

The HFRI Fund Weighted Composite Index declined by -1.84% for the month of February 2018, ending a 15-month streak of positive performance, though it is still in positive territory through the first two months of the year. All four of the main strategy indexes also posted declines for the month. 

The decline of the HFRIFWC was led by losses in quantitative, trend-following CTA strategies, though all main strategy areas experienced losses for the month, according to Hedge Fund Research Inc. (HFR).

The February decline was the largest since January 2016 and pares the Index Value to 14,134, ending a streak of fourteen consecutive record monthly index levels. Inclusive of the February performance, the HFRI FWC has gained +0.5% YTD 2018.

Macro hedge funds posted the largest drop among the main strategies as U.S. equities fell and interest rates climbed on expectations of accelerating inflation. The HFRI Macro (Total) Index fell -3.9 %in February, the largest decline since February 1994; the HFRI Macro Index (Asset Weighted) lost -2.8% for the month.

HFR also found that Quantitative trend-following CTA strategies diverged with Discretionary Fundamental Macro strategies during the period as the HFRI Macro: Systematic Diversified Index sharply declined by -6.5%, the largest monthly loss since inception, and offset the +2.8% gain in January. The HFRI Macro: Discretionary Thematic Index fell -0.2%, slightly pulling down YTD performance to +1.5%.

Established in 1992, HFR specializes in the areas of indexation and analysis of hedge funds. It’s HFR Database, the most comprehensive resource available for hedge fund investors, includes fund-level detail on historical performance and assets, as well as firm characteristics on both the broadest and more influential hedge fund managers.

Other findings from HFR include the following:

  • The HFRI Macro: Currency Index led all sub-strategies with a +1.2% gain for the month, while the HFRI Macro: Multi-Strategy Index dropped -1.5%. Equity Hedge funds also declined in February, though losses were partially offset by exposure to Technology. The HFRI Equity Hedge (Total) Index lost -1.5%, partially offsetting the +3.0% return in January, and bringing the YTD 2018 return to +1.4%, which leads U.S. equities for both February and YTD.
  • The HFRI EH: Quantitative Directional Index led EH sub-strategy declines for the period, falling -2.3%, however, partially offsetting these losses, the HFRI EH: Technology Index gained +0.4%, bringing the YTD Index return to +4.8%.
  • The HFRI EH: Energy/Basic Materials Index fell -0.9% for the month, while HFRI EH: Equity Market Neutral lost -0.6%. Both Event-Driven and fixed income-based Relative Value Arbitrage strategies declined less than 1% in February, as several sub-strategies posted negatively-correlated gains for the month. The HFRI Event-Driven (Total) Index fell -0.6%, paring the YTD gain to +0.7%. The HFRI ED: Special Situations Index declined -1.4%, while the HFRI ED: Distressed Index partially offset strategy losses by advancing +0.2%.

Cryptocurrency funds also declined, though they pared steep intra-month losses as many cryptocurrencies partially recovered by month-end, as the HFR Blockchain Index fell -9.5% for the month.

“Hedge funds declined in February for the first time since October 2016, as long latent global equity market volatility soared and U.S. interest rates increased, with certain hedge fund sub-strategies posting impressive, negatively-correlated gains through the volatility spike,” said Kenneth J. Heinz, President of HFR, in a statement.

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