Opalesque Industry Update - Hedge funds posted gains in June 2014 to conclude the first half of 2014, as equities eclipsed new records and implied volatilities fell sharply despite rising geopolitical tension. The HFRI Fund Weighted Composite Index® gained +1.3 percent for the month, led by Equity Hedge and Event Driven strategies, bringing 1H14 performance for the broad based composite to +3.2 percent. This first half performance is in line with 1H13 gain of +3.2 percent, though hedge funds posted gains in only three of six months in 2014 in contrast to gains in five months in 1H13. The HFRI Fund of Funds Composite Index was up +0.9 percent in June, concluding 1H14 with a gain of +2.0 percent but trailing the gain of +3.4 percent for the same period in 2013.|
Equity Hedge (EH) led all hedge fund strategies in June as equities reached record levels and implied volatilities fell, with the HFRI Equity Hedge Index returning +1.7 percent for the month. HFRI EH concluded 1H14 with a gain of +3.3 percent despite having positive returns in just three of the first six months. EH sub-strategy gains were again led by funds focused on Energy, with the HFRI EH: Energy/Basic Materials Index up +3.8 percent for June and +11.4 percent for 1H14, leading not only EH sub-strategies but all hedge fund sub-strategies through the first half. The HFRI EH: Technology/Healthcare Index climbed +3.1 percent for June recovering from a two month, -5.6 percent drawdown to conclude the first half of the year with a gain of +4.4 percent, while Fundamental Growth strategies rose +1.7 for the month and +3.3 percent in 1H14.
Event Driven (ED) strategies also posted gains for 1H14 as the dynamic M&A and Distressed trends which have dominated the past 12 month accelerated on new transactions and positions. The HFRI Event Driven Index was up +1.3 percent for the month of June to conclude 1H14 with a gain of +4.3 percent, trailing the gain of +5.6 percent from 1H13. ED sub-strategy gains were led by Distressed and Special Situations, with the HFRI ED: Distressed Index gaining +1.4 percent for June and +5.4 percent for 1H14, leading all ED sub-strategies, while the HFRI ED: Special Situations Index gained +1.6 and +4.6 percent, respectively, for month and YTD.
Fixed Income based Relative Value Arbitrage strategies led all main hedge fund strategies for 1H14, as credit spreads tightened and bond yields declined despite continued tapering of stimulus measures by the US Federal Reserve. The HFRI Relative Value Index climbed +1.0 percent for June, the 10th consecutive monthly gain, to conclude 1H14 with a gain of +4.8 percent. RVA strategies have posted gains in 59 of 66 months since December 2008, leading all hedge fund strategies with an annualized gain of +10.6 percent over that period. RVA was led by Yield Alternative strategies, which were up +2.0 percent in June and +9.7 percent for 1H14 to lead all RVA sub-strategies. The HFRI Asset Backed and Corporate Indices also gained +5.7 and +4.9 percent, respectively, for 1H14.
Macro strategies posted gains in June despite falling implied volatilities, declines in the US dollar and widely divergent commodity performance for the month. The HFRI Macro Index gained +0.8 percent for June, the third consecutive month of positive returns, to conclude 1H14 up +1.1 percent. Macro funds posted a decline of -0.94 percent in 1H13 and have endured a challenging performance environment in recent years, having dropped in three consecutive calendar years. June Macro sub-strategy gains were led by Commodity, CTA and Multi-strategies, with the HFRI Macro: Commodity, Systematic Diversified/CTA and Multi-Strategy Indices gaining +1.1, +1.0 and +1.2 percent, respectively. Detracting from gains, the HFRI Macro: Currency Index fell -0.9 percent in June; Macro: Commodity led all Macro sub-strategies for 1H14, up +3.4 percent.
“Hedge fund performance gains from 2013 extended through the first half of 2014 despite minimal overall contribution to HFRI from Macro, which comprise approximately 23 percent of all hedge fund strategies. While equity market gains through mid-year were roughly half those of 2013, hedge fund returns in 1H14 were in line with those of the prior year, clearly indicating increased significance of non- equity market drivers of hedge fund performance,” stated Kenneth J. Heinz, President of HFR. “With the recent collapse of implied volatilities across asset classes, there is a market opportunity in volatility positive strategies, including Macro & CTA strategies. As many near term upside opportunities in traditional equities have been realized in recent months, the opportunity set across Long Short Equity and Event Driven has expanded, with these suggesting strong performance trends for 2H14 uncorrelated to the prevailing equity, interest rate or macroeconomic environment.”
HFR (Hedge Fund Research, Inc.) is the global leader in the alternative investment industry, specializing in the indexation and analysis of hedge funds. www.hedgefundresearh.com