HFRI Indices May 2017 performance

06/07/2017 Market Commentary

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HFRI Technology Index tops S&P 500, DJIA YTD; Positioning in digital currencies, volatility trading and terrorism risk expected to increase in 2H17
CHICAGO, (June 7, 2017) – Hedge funds posted the 7th consecutive month of gains in May, with contributions from Currency and Technology exposures, according to data released today by HFR®, the established global leader in the indexation, analysis and research of the global hedge fund industry. The HFRI Fund Weighted Composite Index® (FWC) gained +0.5 percent for the month, bringing YTD performance to +3.5 percent, and extending the record Index Value to 13,406. The HFRI FWC has now advanced in 14 of the trailing 15 months.
HFRI gains were led by Event-Driven (ED) strategies, as the HFRI Event-Driven (Total) Index advanced +0.6 percent, the 11th consecutive monthly gain, bringing YTD performance to +3.9 percent. ED sub-strategy performance in May was led by the HFRI ED: Special Situations Index, which jumped +1.3 percent, and the HFRI ED: Multi-Strategy Index, which added +0.7 percent. Partially offsetting these gains, the HFRI ED: Distressed/Restructuring Index declined -0.3 percent for the month. The HFRI Event-Driven (Asset Weighted) Index posted a larger gain of +1.1 percent for May, bringing YTD performance to +5.6 percent.
Equity Hedge (EH) strategies also advanced in May as equity-implied volatility fell to a historic low, with performance led by Technology, Quantitative Directional, and Multi-Strategy exposures. The HFRI Equity Hedge (Total) Index gained +0.54 percent, the 7th consecutive monthly gain, bringing the YTD return to +5.2 percent, leading all main strategies. The HFRI EH: Technology Index jumped +2.7 percent in May, bringing YTD performance to +9.1 percent, which tops the S&P 500 and DJIA for 2017. The HFRI EH: Quantitative Directional Index advanced +1.7 percent in the month, while the HFRI EH: Multi-Strategy Index added +1.3 percent. Partially offsetting these, the HFRI EH: Energy Index and EH: Healthcare Index fell -2.4 and -1.5 percent, respectively, for the month.
The HFRI Macro (Total) Index gained +0.5 percent in May, as the Euro and Swiss Franc advanced following the French election and as implied equity volatility declined to historical lows. Macro was led by the HFRI Macro: Currency Index, which vaulted +3.5 percent, the strongest month return since inception, bringing YTD performance to +8.2 percent. In addition to contributions from Euro, Swiss France, New Zealand Dollar and Korean Won, the Currency Index also had strong contributions from exposure to digital currencies. Quantitative, trend-following CTAs advanced for the 2nd consecutive month, as the HFRI Macro: Systematic Diversified/CTA Index added +0.7 percent in May.
Fixed income-based Relative Value Arbitrage (RVA) strategies posted a narrow gain for the month, with the HFRI Relative Value (Total) Index advancing +0.06 percent, extending the streak of consecutive monthly gains to fifteen. Asset-Backed and Volatility funds led RVA performance in May with gains of +0.9 and +0.7 percent, respectively. The HFRI RV: FI-Asset Backed Index leads RVA sub-strategy performance YTD with a +4.0 percent return. Partially offsetting the monthly gains, the HFRI RV: Yield Alternatives Index fell -3.0 percent on losses in Energy Infrastructure/MLP exposures.
In a volatile month, the HFRI Emerging Markets (Total) Index advanced +0.8 percent with strong gains in the Middle East and Emerging Asia partially offset by declines in Latin America and Russia. The HFRI MENA Index jumped +2.6 percent for the month, while the HFRI Asia ex-Japan Index added +2.2 percent, bringing YTD performance to +6.2 and +13.3 percent, respectively. Meanwhile, the HFRI EM: Latin America Index declined -2.9 percent for the month and the HFRI EM: Russia/Eastern Europe Index fell -1.3 percent.
“Hedge funds extended strong performance in May led by Technology, Currency and Event-Driven strategies, as Macron prevailed in the French election, emerging market volatility spiked and receded intra-month, and equity-implied volatility fell to historical lows,” stated Kenneth J. Heinz, President of HFR. “As a result, the thematic drivers of performance for 2H17 have shifted to include not only the Trump and Yellen trades, but also the Volatility reversal trade and the increased risk associated with Terrorism and Cybersecurity. Managers positioned tactically long and short which are able to navigate both rising and falling volatility market cycles are likely to lead industry performance in 2H17.”
Comments reference Flash Update performance figures as posted on June 7, 2017.