Opalesque Industry Update: Hedge funds posted their 7th consecutive monthly gain in May and the 11th gain in the last twelve months as strong performance in Equity Hedge and Event Driven strategies offset weakness in Macro and CTA strategies, according to data released today by HFR.|
The broad-based HFRI Fund Weighted Composite Index advanced +0.5 percent for the month, led by a gain of +1.8 percent for the HFRI Equity Hedge Index. Equity Hedge, the largest strategy area for the equally-weighted HFRI Composite, saw gains distributed across most sub-strategies, with Fundamental Value, Sector Technology and Fundamental Growth advancing +2.5 percent, +2.4 percent, and +1.1 percent, respectfully. Meanwhile, Short Bias funds detracted from overall Equity Hedge performance, declining by -3.2 percent.
The HFRI Event Driven Index added +1.7 percent in May, its 12th consecutive monthly gain, powered by the continuation of the dynamic market for corporate transactions. The HFRI ED: Distressed/Restructuring Index advanced +1.7 percent for the month, while funds specializing in Special Situations and Activist strategies gained +1.7 and +4.9 percent, respectively.
Fixed Income-based Relative Value Arbitrage, the largest hedge fund strategy area by capital with $640 billion in AUM, also posted its 12th consecutive monthly gain and the 46th gain in 53 months since the onset of the Financial Crisis in December 2008. Despite the sharp rise in bond yields, the HFRI Relative Value Index advanced +0.06 percent in May, led by a gain of +1.9 percent in the HFRI RV: FI - Convertible Arbitrage Index. Credit Multi-Strategy funds and Yield Alternative strategies gained +1.7 percent and +0.4 percent, respectfully, in May.
The HFRI Macro/CTA Index declined by -1.5 percent for the month, on weakness in quantitative trend-following CTA and Commodity-focused strategies. The HFRI Systematic Diversified CTA Index fell -2.2 percent, reversing a similar gain from the prior month, with negative contributions across equity, fixed-income and commodity exposures. Partially offsetting these declines, Discretionary Macro strategies added +0.2 percent while performance was mixed across Currency-focused Macro strategies.
“The performance gains seen in May are significant because in contrast to prior months, when risk-on sentiment and powerful equity market beta globally drove performance, May was dominated by a sharp reversal in the Nikkei, concerns about the impact of curtailment of quantitative easing by the U.S. Federal Reserve and a sharp rise in bond yields globally,” stated Kenneth J. Heinz, President of HFR. “Risk-on sentiment quickly reversed to risk-off into month-end and while certain quantitative, trend-following strategies were adversely impacted by these reversals, strong positioning and effective hedging across Equity, Event and Arbitrage drove gains across the HFRI indices, underscoring the powerful dynamic of strategic diversification inherent in investible indices and across heterogeneous fund strategies.”
Heinz added, “While the extent and continuation of equity market gains may be unclear at this point, the eventual curtailment and extraction of stimulus measures is likely to contribute to a challenging, volatile and uncertain environment, and hedge funds are tactically and strategically positioned to generate performance and preserve gains through just these sorts of conditions.”