Hedge Funds Show Worst Performance in 15 Months‎

The latest report on hedge fund performance from industry data ‎provider Hedge Fund Research, Inc showed that the more than $3 trillion asset class turned in the ‎worst performance since January 2016, ending a streak of 15 ‎consecutive monthly gains.‎

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HFR’s widely-followed HFRI Fund Weighted Composite Index® lost -1.8 percent in ‎February 2018, though comfortably outperforming underlying markets as ‎strong earnings and economic data were not enough to quell jitters from ‎higher interest rates in the United States.‎

While all main strategies dropped in February, industry performance ‎was led by macro strategies, according to Hedge Fund Research. The ‎HFRI Macro (Total) Index lost -3.9 percent, the biggest monthly ‎loss since February 1994. ‎

Equity hedge funds also marched lower, with the HFRI Equity Hedge ‎‎(Total) Index falling -1.5 percent, led by energy and emerging ‎markets. The index returned 1.4 percent year-to-date through February 28, ‎down from 3 percent in the first month of 2018.‎

Cryptocurrency funds also declined, though they pared steep intra-month losses as ‎many cryptocurrencies partially recovered by month-end. The HFR Blockchain ‎Index fell -9.5 percent for the month.‎

Yet, amid the overall weak performance in the hedge fund sector, ‎there were some bright spots. Notably, Technology Index gained +0.4 percent, ‎bringing the YTD Index return to +4.8 percent.‎

In addition, February’s drop could be overshadowed by ‎March’s shakeout, that has seen stocks from the U.S. to Asia plunge, ‎rebound then fall anew, while bonds and currencies have also fluctuated ‎wildly. That could help funds that thrive on volatility, while investors who ‎have taken short positions may be hurt.‎

Commenting on the results, Kenneth J. Heinz, President of HFR said: ‎“Hedge funds declined in February for the first time since October 2016, as long latent global ‎equity market volatility soared and US interest rates increased, with certain hedge fund sub-‎strategies posting impressive, negatively-correlated gains through the volatility spike.”

He continued: “Despite the decline, the thematic drivers of hedge fund ‎performance have not changed and, in fact, may actually have accelerated throughout the ‎month. US inflation and interest rates, trade negotiations and the newly proposed tariffs, ‎corporate HFR / Page 3 M&A, and continued application of blockchain technology are likely to ‎drive industry performance, creating both long and short opportunities, throughout 2018.”‎

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