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The HFRI Fund Weighted Composite Index® (FWC) Index fell -1.5 percent for the month, topping US equities by 480 basis points (bps), as losses across equity-sensitive strategies were only partially offset by mixed performance across fixed income-based Relative Value Arbitrage (RVA) exposures. The May decline pares the YTD return of the HFRI FWC to +5.3 percent. Approximately 87 percent of hedge funds outperformed the S&P 500 for the month, with the top decile of funds gaining +5.1 percent, while the bottom decile fell by -8.7 percent.

The HFRI 500 Fund Weighted Composite Index, an investible index of 500 leading hedge funds, posted a narrow decline of only -0.3 percent for the month, topping US equities by over 600 bps.

Liquid Alternatives fell moderately in May 2019, as the HFRI-I Liquid Alternative UCITS Index lost -0.94 percent for the month. The HFRI-I Liquid Alternative UCITS Macro Index declined -0.38 percent in May, while HFRI-I Liquid Alternative UCITS Equity Hedge Index fell -1.52 percent.

The HFRI Equity Hedge (Total) Index led strategy declines for the month, falling -2.4 percent, the first decline since December 2018 and paring the YTD return to +6.8 percent. Directional and Market Neutral EH sub-strategies produced a wide disparity of sub-strategy performance, as the HFRI EH: Quantitative Directional Index fell -3.6 percent, while the quantitative, factor-based HFRI EH: Equity Market Neutral Index gained +0.9 percent. Larger Equity Hedge funds produced more moderate declines for the month, as the HFRI 500 Equity Hedge Index fell only -0.5 percent.

Credit-sensitive, fixed income-based Relative Value Arbitrage strategies generated mixed performance as the US yield curve inverted, with gains in Volatility and Asset Backed strategies offset by declines in Multi-strategy and Corporate bond exposures. The HFRI Relative Value (Total) Index declined narrowly by -0.2 percent for the month, as performance was led by the HFRI RV: Volatility Index, which gained +2.2 percent, and the HFRI RVA: Asset Backed Index, which added +0.4 percent. Offsetting these gains, the HFRI RV: Multi-Strategy Index fell -1.3 percent. Larger RVA funds produced a narrow gain in May, as the HFRI 500 Relative Value Index added +0.04 percent.

The M&A-sensitive HFRI Event-Driven (Total) Index declined for the month, losing -1.4 percent, driven by the HFRI ED: Activist Index, which fell -4.1 percent, and the HFRI ED: Special Situations Index, which dropped -2.2 percent. Larger Event-Driven funds produced more moderate declines for the month, as the HFRI 500 Event-Driven Index fell only -0.4 percent.

The HFRI Macro (Total) Index lost -0.6 percent in May, as declines in Commodity and quantitative, trend-following CTA strategies were only partially offset by gains in Multi-Strategy exposures. The HFRI Macro: Commodity Index fell -0.5 percent for the month, while the HFRI Macro: Systematic Diversified Index declined -1.7 percent. These losses were partially offset by the HFRI Macro: Multi-Strategy Index, which advanced +1.8 percent, and the HFRI Macro: Currency Index, which added +0.5 percent. Larger Macro funds produced more moderate losses for the month, as the HFRI 500 Macro Index fell only -0.2 percent.

Risk Premia strategies posted mixed returns for the month as risk-off sentiment dominated performance trends, while losses in Commodity and Credit strategies were only partially offset by gains in Rates. The HFR BSRP Commodity Index fell -12.8 percent in May, while the HFR BSRP Credit Index lost -9.3 percent. Partially offsetting these declines, the HFR BSRP Rates Index gained +2.2 percent for the month. Risk Parity strategies fell for the first time in 2019, as the HFR Risk Parity Vol 15 Index dropped -1.3 percent in May, paring YTD performance to +14.5 percent.

Cryptocurrency funds surged for the fourth consecutive month, with the HFR Blockchain Composite Index vaulting +45.4 percent in May, extending gains from the prior three months and bringing YTD performance to +81.7 percent.

"Hedge funds declined in May though outperformed steep global equity market losses, as fluid and ongoing trade tariff negotiations drove powerful risk-off sentiment across financial markets, paring early 2019 gains and tempering optimistic near-term growth expectations. Areas of hedge fund outperformance included uncorrelated and low-beta exposures of Relative Value Volatility, Macro Multi-Strategy, and factor-based Equity Market Neutral, as well as volatile Blockchain and Cryptocurrency exposures," stated Kenneth J. Heinz, President of HFR. "The macroeconomic environment has very quickly shifted from a V-shaped recovery to expectations for a W-shape, with the possibility of Federal Reserve interest rate cuts in 2019. This near-term adjustment has contributed to an expansion of the opportunity set for specialized long-short investments, and funds positioned for this environment are likely to lead industry performance through mid-year."

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