Hedge Funds Leap Forward in February
Posted by Colin Lambert. Last updated: March 9, 2024
Data from analytical firm HFR indicates that hedge funds had a very strong February, with quantitative and systematic macro funds posting their best gains in almost two years, with around three-quarters of funds producing profits.
The HFRI Fund Weighted Composite Index (FWC) was up an estimated 2.5% in February, while the HFRI 500 FWC Index added 2.6%. With crypto prices surging it was also a strong month for specialised cryptocurrency funds, which are separate from the HFRI Index, with these funds gaining 31.2% for the month – slightly below the 42% gain in bitcoin during February.
Macro strategies also posted strong gains as interest rates rose on an improving global economic outlook, with the HFRI Macro (Total) Index advancing and estimated 3.0%, with strong contributions from commodities, currency and energy exposures. Macro sub-strategy gains were led by the HFRI Macro: Systematic Diversified Index, which rose 4.8% in February, the strongest monthly gain since March 2022; while the HFRI Macro: Active Trading Index also added 0.4% for the month.
Fixed income-based, interest rate-sensitive strategies also gained in February despite rising bond yields, with the HFRI Relative Value (Total) Index advancing an estimated +0.8%.
Performance dispersion increased slightly in February, as the top decile of the HFRI FWC constituents advanced by an average of +11.8%, while the bottom decile fell by an average of -2.9%, representing a top/bottom dispersion of 14.7% for the month. By comparison, the top/bottom performance dispersion in January was 13.7%, and in the trailing 12 months ending February 2024, the top decile of FWC constituents gained +43.7%, while the bottom decile declined -12.9%, representing a top/bottom dispersion of 56.6%.
“Hedge funds surged across a broad range of strategies in February as a combination of an improving outlook for economic growth, expectations for interest rate decreases and other technical factors drove strong gains across global equity and cryptocurrency markets, with hedge fund performance led by equity, macro and cryptocurrency exposures,” says Kenneth Heinz, president of HFR. “Driven by a powerful tailwind of risk on sentiment, the industry leading HFRI Fund Weighted Composite Index has surged +8.75% in the trailing four months, the strongest four-month gains since the period ending March 2021.
“February performance was not only strong and broad-based, but included gains from strategies which often exhibit low correlation to global equity markets, with these including categorically low volatility Market Neutral, uncorrelated Quant Macro/Trend Following, idiosyncratic Distressed and volatile Cryptocurrency exposures,” he continues. “In an effort to greater capture these sources of return, multi-strategy firms continue to increase the scope and breadth of the exposures taken by various trading pods. Institutions interested in opportunistically accessing these powerful, specialised macroeconomic trends while maintaining tactical exposure flexibility relating to evolving macroeconomic and geopolitical risks are likely to increase exposure in 2024 to funds which have demonstrated their strategy’s robustness over the recent market cycles.”