02/07/2018 Market Commentary

HFRI FWC sees strongest monthly gain since Dec 2010; Macro strongest since Feb 2008
CHICAGO, (February 7, 2018) – Hedge funds surged to begin 2018 as equity markets turned in the strongest January since 1997, despite equity, currency and fixed income market volatility building into month-end. The HFRI Fund Weighted Composite Index® gained +2.8 percent for the month, the strongest monthly return since December 2010 and the best January return since 2006. The gain extended the streak of consecutive monthly gains to 15 and lifted the record Index Value to 14,465, according to data released today by HFR®, the established global leader in the indexation, analysis and research of the global hedge fund industry.
While all main strategies advanced for the month, industry performance was led by Macro strategies, with the HFRI Macro (Total) Index climbing +3.7 percent, the best monthly gain since February 2008. Macro sub-strategy performance was led by quantitative, trend-following CTA strategies, with the HFRI Macro: Systematic Diversified Index vaulting +4.8 percent, the strongest return since October 2008. Fundamental Macro also advanced for the month, as the HFRI Macro: Discretionary Thematic Index gained +3.6 percent, while the HFR Macro: Multi-Strategy Index added +3.4 percent.
Equity Hedge funds also surged in January, with the HFRI Equity Hedge (Total) Index advancing +3.0 percent, led by Technology and Emerging Markets exposures. The HFRI EH: Technology Index gained +5.9 percent for the month, the best performance since Index inception in 2008. The HFRI Emerging Markets (Total) Index jumped +5.1 percent in January, led by the Latin America and Russia sub-indices, which gained +7.2 and +5.9, respectively.
Event-Driven (ED) strategies advanced to start the year, with the HFRI Event-Driven (Total) Index adding +1.6 percent in January. ED sub-strategy performance was led by equity market-sensitive special situations exposures, with the HFRI ED: Special Situations Index gaining +2.7 percent. Credit-sensitive arbitrage funds also gained with the HFRI ED: Credit Arbitrage Index up +1.7 percent.
Fixed income-based Relative Value Arbitrage funds also gained to begin 2018 as U.S. interest rates increased, as the HFRI Relative Value (Total) Index advanced +1.5 percent, led by Yield Alternatives funds, which gained +2.3 percent, and Convertible Arbitrage funds, which added +2.1 percent. Risk Parity funds posted a narrow gain for January, as equities surged, yields increased, commodities gained and the US dollar fell, with the HFR Risk Parity Vol 10 Index adding +0.5 percent for the month.
Volatile Cryptocurrency and Blockchain funds fell in January even as cryptocurrencies fell sharply, with the HFR Blockchain Index falling -9.2 percent. As reported previously, the HFR Blockchain Index surged +2,798 percent in 2017.
“After a historic year in 2017, hedge funds began 2018 extending strong gains, even as realized and implied volatility associated with global equities, currencies (including cryptocurrencies), commodities, fixed income and the outlook for global inflation all increased,” stated Kenneth J. Heinz, President of HFR. “Hedge funds will continue to navigate these volatile markets and asset classes in 2018, monetizing opportunities generated by US tax cuts and infrastructure spending, US monetary policy, and corporate M&A and special situations. These themes are likely to drive performance and industry growth in 2018.”
Comments reference Flash Update performance figures as posted on February 7, 2018.