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HFRI Fund Weighted Composite Index down -0.34% in March (+1.07% YTD)

Tuesday, April 08, 2014
Opalesque Industry Update - Hedge funds posted mixed performance in March as investor uncertainty over secular unrest in Ukraine and Syria, as well as mixed macroeconomic outlooks for China, Europe and the U.S., contributed to increased volatility across equity, currency, commodity and fixed income markets.

Hedge funds posted a narrow decline for the month, with the HFRI Fund Weighted Composite (FWC) Index falling -0.3 percent, as losses in Macro and CTA strategies offset gains in Relative Value Arbitrage strategies, according to data released today by HFR, the established global leader in indexation, analysis and research for the global hedge fund industry. For the first quarter, the HFRI FWC gained +1.1 percent, 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 percent for the month and +2.4 percent for 1Q14, 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 percent 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 percent and the HFRI RV: Asset Backed Index up +1.3 percent. HFRI RV: Yield Alternative Index gained +1.0 percent for the month and +3.7 percent for 1Q14, while HFRI RV: Volatility Index gained +0.5 percent in March and +2.0 for 1Q14.

Event Driven strategies extended strong 2013 performance through 1Q14, despite posting a narrow decline for March. The HFRI Event Driven Index declined -0.1 percent in March but gained +1.8 percent 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 percent in March and +3.3 percent for 1Q14, the leading area of ED performance, while the HFRI ED: Distressed Index and Credit Arbitrage strategies gained +2.3 and +2.7 percent, respectively, for 1Q14. The HFRI: ED Special Situations Index gained +1.7 percent for 1Q14, despite posting a decline of -0.5 percent for March.

The HFRI Equity Hedge Index posted gain of +1.4 percent for 1Q14 despite a decline of -0.2 percent 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 percent. For the 1Q14, funds specializing in Technology and Energy led EH performance, with the HFRI EH: Technology/Healthcare Index gaining +5.7 percent, and the HFRI EH: Energy/Basic Materials Index up +6.0 percent for the quarter.

Macro strategies were the only area of hedge fund performance to post a decline for 1Q14, with a March drop of –1.1 percent for the HFRI Macro Index offsetting February gains and bringing first quarter performance to a decline of -0.5 percent. The HFRI Macro: Currency Index gained +0.74 percent 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 percent. 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 percent for March and -1.8 percent for 1Q14.

"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," stated Kenneth J. Heinz, President of HFR.

"The choppy financial market environment of 1Q14 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. Hedge fund investors continue to actively position in strategies offering positive optionality inherent in specialized, focused exposures which allow them to participate in continued gains across these asset classes, but also afford portfolio protection from rising yields, credit deterioration and equity corrections which may occur through 2014."

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