All major hedge fund strategies recorded gains in December and for 2016, Hedge Fund Research reported Monday.
The HFRI Fund Weighted Composite Index advanced 1.1% in December, bringing the annual return to 5.6% and the index value to 12,966, ahead of the previous record set in May 2015 and the highest value since its inception in January 1990. This year’s performance was a big improvement on 2015, when the index finished down 0.9%.
“Like U.S. equities, the HFRI reached a record high in December, benefiting from post-election optimism, surging commodities and despite increases in U.S. fixed income yields,” HFR president Kenneth Heinz said in a statement.
This record index performance also coincided with record hedge fund assets reached in the third quarter, Heinz said.
“Following a disappointing decline in 2015, hedge fund performance in 2016 was the highest since 2013 and not only tops indices of global equities, but also the annualized HFRI performance over the last 5 and 10 years. The recent (post-election) increase in investor risk tolerance is likely to drive continued performance and capital gains into mid-2017.”
The HFRI Asset Weighted Composite Index also gained 1.1% in December, and finished the year up 3%.
Following are performance results of HFR’s major hedge fund strategies:
December return: 1.5%
2016 return: 10.2%
2015 return: -2.9%
Three-year return: 7.5%
Equity and credit-sensitive event-driven strategies — M&A, special situations and distressed — led industry performance for December and 2016, turning in its strongest annual performance since 2013.
All substrategies climbed in December: distressed, up 13.4%; special situations, up 11.6%; activist and credit arbitrage, both up 10.5%.
Relative Value Arbitrage
December return: 1.2%
2016 return: 7.8%
2015 return: -0.2%
Three-year return: 11.8%
Fixed income-based relative value arbitrage strategies advanced in both December and 2016, led by the yield alternative substrategies — energy infrastructure, master limited partnerships and real estate — up 2.6% in December and 17.6% for 2016.
Hedge funds investing in corporate bonds also posted strong performance, as the fixed income-corporate subindex gained 1.9% for December and 11.7% for the year.
December return: 0.9%
2016 return: 5.5%
2015 return: -0.4%
Three-year return: 6.4%
Long/short equity hedge strategies recorded positive performance in both December and 2016, as global equities rallied to conclude a strong fourth quarter.
The quantitative directional subindex was up 1.7% in December, while the energy/basic materials sub-index added 0.5% for the month to conclude the year up 18.7%, the top substrategy performance across all sectors.
December return: 1.2%
2016 return: 1.5%
2015 return: -1.3%
Three-year return: 5.8%
Macro hedge funds gained in December as interest rates rose and energy commodities surged, but macro produced only a small gain for the year.
Despite strong performance early in 2016 and through the Brexit turmoil, quantitative, trend-following CTA strategies posted a loss for the year. The macro: systematic diversified subindex gained 1.2% for December, paring the full-year decline to 1%. HFR said that out of 27 substrategies it calculated, macro: systematic diversified was the only one to record a loss for 2016.
Macro substrategy performance in 2016 was led by commodity exposures, with the macro: commodity subindex advancing 5.2%.