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Hedge funds posted gains across all main strategies in May, recovering from small declines in each of the prior two months, with returns driven by an equity market recovery, robust acceleration of M&A activity and falling yields.

The HFRI Fund Weighted Composite Index gained +1.2 percent for the month, led by contributions from Fundamental Growth, Shareholder Activist, Emerging Markets and Yield Alternative strategies, as reported today by HFR. Despite posting gains in only two of five months thus far for 2014, strong performance in February and May has more than offset the relatively mild declines in the other months, bringing YTD performance for the HFRI to +2.0 percent. Fund of Hedge Funds also advanced for May, with the HFRI Fund of Funds Index gaining +1.1 percent.

​May performance was led by Equity Hedge (EH) strategies, with the HFRI Equity Hedge Index advancing +1.4 percent, recovering from Technology-centric losses of the prior month and bringing 2014 performance to +1.7 percent. Despite a sharp decline in equity trading volumes for the month, growth strategies were the leading contributor among EH sub-strategies, complemented by a recovery in Emerging Markets. The HFRI EH: Fundamental Growth Index advanced +2.3 percent in May, while the HFRI Emerging Markets (Total) Index gained +3.2percent. Within EM, hedge funds investing in Russia experienced a strong recovery from recent losses as geopolitical tensions subsided, with the HFRI EM: Russia/Eastern Europe Index gaining +9.1 percent for May, while the HFRI EM: Asia ex-Japan Index gained +2.5 percent. Energy/Basic Materials remained the leading EH sub-strategy for 2014, with the HFRI EH: Energy/Basic Materials Index advancing +0.4 percent for May extending 2014 performance to a gain of +6.6 percent.

​The fixed income-based HFRI Relative Value Arbitrage Index also gained +1.2 percent in May, the 9th consecutive month of positive returns for the Index and 29th gain in last 33 months; RVA leads all strategies YTD with a return of +4.1 percent. RVA strategy gains were led by Yield Alternative, Volatility and FI: Corporate sub-strategies, with the corresponding HFRI Index for these gaining +2.6, +1.7 and +1.2 respectively, for the month. Yield Alternatives leads all RVA sub-strategies YTD 2014, as well as all sub-strategies industry wide, advancing +8.0 percent.

​Event Driven and Macro strategies also posted gains for the month, with Macro offsetting a negative contribution from Commodity exposure with gains in Discretionary & Active Trading. The HFRI Event Driven Index advanced +1.1 percent for the month, with a strong contribution from the HFRI ED:Activist Index, which led ED strategies with a gain of +3.5percent. For 2014, the HFRI Event Driven Index has gained +3.1 percent, led by the HFRI ED: Distressed Index, which has advanced +3.9 percent. The HFRI Macro Index gained +0.9percent for May, led by contributions from Active Trading and Discretionary Thematic exposures, with these HFRI Indices each gaining +1.9 percent. The HFRI Commodity Index declined -2.0 percent for the month, paring the YTD gain to +1.5 percent, while Macro sub-strategies are led YTD by the HFRI Macro: Active Trading Index, which has gained +2.7percent.

​“Effective tactical positioning in recovering Technology equities and Emerging Markets were two of a wide range of positive drivers of hedge fund performance for May, with the diversity of positive contributions effectively illustrating the specialization, flexibility and significance of the heterogeneous strategy distributions for hedge fund investors in the current environment,” stated Kenneth J. Heinz, President of HFR. “Despite the broad-based gains for May, many hedge fund managers have assumed or maintain conservative positioning across various asset classes, cognizant of the balance betweennear term opportunities and the intermediate term risks as a function of cyclical equity and fixed income valuations levels. As a result, low beta performance gains in coming months are expected to contribute to accelerated industry asset growth through mid-year 2014.”