HFRX Index Methodology
HFR utilizes a UCITS compliant methodology to construct the HFRX® Hedge Fund Indices. This methodology includes robust classification, cluster analysis, correlation analysis, advanced optimization and Monte Carlo simulations.
Production of the HFRX Methodology results in a model output which selects funds that, when aggregated and weighted, have the highest statistical likelihood of producing a return series that is most representative of the reference universe of strategies. In addition, the HFRX Methodology defines certain qualitative characteristics, such as: whether the fund is open to transparent fund investment and the satisfaction of the index manager's due diligence requirements.
HFR offers three HFRX Index series: the daily-reporting HFRX Indices (UCITS) which are comprised of liquid alternative UCITS funds, the monthly-reporting HFRX Indices (Flagship Funds) which are comprised of private hedge funds and the HFRX ESG Indices which utilize an ESG framework.
About the Index
The HFRX Global Hedge Fund Index® is comprised of funds representing all main hedge fund strategies. The underlying strategies are asset weighted based on the distribution of assets in the hedge fund industry.
The values for the HFRX EUR, JPY, CHF, CAD and GBP FX Indices are calculated by applying to the USD index value the cost of a rolling monthly foreign exchange contract on the relevant currency. All HFRX Indices are re-balanced quarterly.
To be included in the HFRX Indices a hedge fund must:
- Report assets in USD
- Have at least $50 Million under management and have been actively trading for at least twenty-four months (These criteria may vary slightly by index)
- Be open to new investment in separately managed accounts
- Meet the criteria for inclusion as determined by a rigorous quantitative selection process:
- Cluster and correlation analyses are performed to group managers by true strategy categories and to eliminate outliers
- Monte Carlo Simulation helps determine the adequate number and types of managers to replicate each strategy
- Selected managers must provide transparency and pass extensive qualitative screening
- Funds are then weighted to maximize representation with their group
CORRECTION NOTICE: August 2022 performance of the HFRX Macro: Commodity-Metals Index (Flagship Funds) was revised from -0.02% to -0.39%