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Hedge Funds Have Best Quarter Since 2011

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Hedge funds in March concluded their best three-month period since the third quarter of 2011, according to Hedge Fund Research.

The HFRI Fund Weighted Composite Index posted a 0.5% gain in March and 2.4% for the first quarter.

HFR said in a statement that strong macro trends in commodity and currency markets drove first-quarter performance, and these were complemented by wide gains and positioning in equity hedge, event-driven and fixed-income-based relative value arbitrage strategies.

Macro strategies recorded the biggest industry gains for the third consecutive quarter, led by trend-following, quantitative CTA strategies.

The HFRI Macro Index was up 0.7% in March and 3.4% for the quarter. Macro funds have now posted gains in 10 of the last 12 months.

The systematic diversified/CTA sub-index gained 1.1% in March and 5.1% for first quarter, with CTAs also posting their 10th monthly gain over the past 12 months.

Equity hedge funds also ended March on a positive note, up 0.5% for the month and up 2.3% for the quarter.

Energy/basic materials exposures led March equity hedge performance, gaining 2.5%. For first quarter, the multi-strategy and technology/health care sub-strategies were the big winners, up 5.7% and 4.3%, respectively.

Event-driven hedge funds also posted gains, with the HFRI Event Driven Index advancing 0.6% in March and 2% for the first quarter. Activist and special situations sub-strategies turned in the best performance, adding 2.8% and 3.1%, respectively. Merger arbitrage funds gained 2.4%.

The HFRI Relative Value Arbitrage Index advanced 0.3% for March and 1.7% for the quarter, as bond yields penetrated historical lows and negative nominal levels in response to the European Central Bank’s quantitative easing.

The volatility sub-index, which comprises options-based funds that trade volatility as an asset class, gained 3.4% for the quarter, leading all relative value sub-strategies. The convertible arbitrage sub-index was up 2.1%, and the multi-strategy sub-index was up 2%.

Emerging markets funds saw first-quarter performance gains in emerging Asia, up 4.9%, and Russia, up 5.1%, but these were offset by declines in the Middle East, down 2%, and Latin America, down 7.1%.

These returns resulted in the HFRI Emerging Markets (Total) Index gaining 1% for the quarter.

“While considerable uncertainty as to the near-term path of the global economic recovery exists at present, the environment for hedge fund strategies which opportunistically capture risk premia across various asset classes has improved recently as beta driven U.S. equity gains of the prior three years have moderated,” HFR president Kenneth Heinz said in the statement.

“Expecting the fluid macro environment and trading opportunities in oil, currency and M&A (including energy and health care) to persist, hedge fund performance is likely to extend recent gains through midyear.”

— Check out Venture Capital Dealmaking Strong in First Quarter on ThinkAdvisor.