HFRI Indices Performance Notes November 2016

12/07/2016 Market Commentary

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Activist, Energy surge on expectations for growth; HFRI rises to near record level
CHICAGO, (December 7, 2016) – Hedge funds advanced in November, as the surprising victory of Donald Trump in the US Presidential election drove expectations for renewed growth, infrastructure spending and reduced regulation. The HFRI Fund Weighted Composite Index® (FWC) Index gained +0.9 percent in the month, with the Index Value rising to 12,841.95, the highest level since May 2015 and 2nd highest since inception (1990), as reported today by HFR®, the established global leader in the indexation, analysis and research of the global hedge fund industry.
The November advance reverses the decline from the prior month, represents the eighth monthly gain in the past nine months, and brings YTD performance to +4.6 percent, topping global equities. The HFRI Asset Weighted Index posted a larger gain of +1.2 percent in November, the fifth consecutive monthly advance and also the eighth monthly gain in the past nine months.
Event-Driven (ED) hedge funds led strategy performance for the month, as US equities rallied to record levels while US government bond yields rose sharply. The HFRI Event-Driven (Total) Index surged +2.2 percent, the fifth consecutive monthly gain, bringing YTD performance to +9.4 percent, leading all main strategies. ED sub-strategy performance was led by a strong recovery in Shareholder Activist funds, with the HFRI ED: Activist Index climbing +6.3 percent, the largest monthly increase since November 2012 and bringing the YTD return to +8.8 percent. The HFRI ED: Multi-Strategy Index gained +2.9 percent in November, while the HFRI ED: Distressed Index added +1.6 percent, leading all ED sub-strategies YTD with a net return of +12.8 percent.
Equity Hedge (EH) strategies also posted a strong gain for the month as US small cap and energy commodities surged, with the HFRI Equity Hedge (Total) Index advancing +1.5 percent, reversing an October decline. EH sub-strategy performance was led by the volatile Energy sector, with the HFRI EH: Sector-Energy/Basic Materials Index up +6.2 percent, the strongest gain since April, bringing YTD performance to +22.8 percent, the leading area of sub-strategy performance industry-wide. Other EH sub-strategies advanced in November, as the HFRI EH: Quantitative Directional Index climbed +3.7 percent, the HFRI EH: Fundamental Value Index returned +2.6 percent, and the HFRI EH: Sector-Technology/Healthcare Index added +2.3 percent.
Fixed income-based Relative Value Arbitrage (RVA) strategies also gained despite the sharp post-election increase in US government bond yields, with the HFRI Relative Value (Total) Index advancing +0.4 percent, the ninth consecutive monthly gain, bringing YTD performance to +6.4 percent. The HFRI RV: Yield Alternatives Index led RVA sub-strategy performance in November with a gain of +2.4 percent; the Index also leads RVA sub-strategy performance YTD with a return of +14.7 percent. Other positive contributors for the month were the HFRI RV: FI-Asset Backed Index (+0.8 percent) and the HFRI RV: Volatility Index (+0.5 percent).
Macro hedge funds posted declines in November, with the HFRI Macro (Total) Index falling -0.2 percent, paring the YTD gain to +0.3 percent. Fundamental, commodity, and quantitative trend-following CTA Macro sub-strategies led declines for the month, with the HFRI Discretionary Thematic Index falling -1.7 percent while the HFRI Systematic Diversified/CTA Index was off -0.5 percent. The HFRI Macro: Multi-Strategy Index partially offset these losses with a gain of +2.4 percent.
“Hedge funds advanced to a near record level in November on the surprise Trump victory despite the sharp rise in yields and US Dollar strength, as US equities also rallied to record highs on expectations of a new administration focused on economic growth and reduced regulation,” stated Kenneth J. Heinz, President of HFR. “While few funds may have predicted the election result, it was a true inflection point with hedge fund performance benefitting from post-election fundamental mean-reversion and convergence predicated on gradually normalizing risk-free rates and a pro-business agenda for the coming term. Hedge funds which have tactically adjusted their investment positions for this environment are likely to lead industry performance and growth into 2017.”
Comments reference Flash Update performance figures as posted on December 7, 2016.