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Hedge Funds Extend Monthly Losses, Down 1.1% in September

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Hedge funds recorded their fourth consecutive monthly loss in September, the longest sustained decline since the 2008 financial crisis, Hedge Fund Research reported Wednesday.

The broad-based HFRI Fund Weighted Composite Index fell by 1.1% in September. The index is down 5% since June and down 1.3% for the year, HFRI said.

In 2008, the index chalked up six consecutive months of negative performance, from June through November, losing 19.1%.

The HFRI benchmark is still ahead of the S&P 500, down about 2% for the year, and Dow Jones industrial average, down about 4%.

Global equities, commodities and high-yield credit tumbled in September, while increased volatility sustained throughout the month, HFRI noted.

Equity- and credit-sensitive event-driven strategies led the September rout. The HFRI Event Driven Index declined by 2.5%, hurt by exposure to positions in Glencore, Valeant and high-yield credit.

Activist strategies posted the weakest event-driven performance for the month, as the activist subindex fell by 5.2%, and is now down 4.7% year to date.

The HFRI Equity Hedge Index declined by 1.7% in September. Gains in the equity market neutral and short bias strategies — up 1.1% and 0.2% — only partially offset losses in the volatile biotechnology sector, as the technology/healthcare subindex declined by 3.5%.

Fixed-income-based relative value arbitrage strategies recorded a 1% loss for the month as high-yield credit spreads widened. Energy infrastructure partnerships led the relative value arbitrage yield alternative subindex loss, down 6.1%.

In contrast, the volatility subindex gained 2.4%, and is up 6.5% for the year.

Uncorrelated macro strategies partially offset declines across many directional strategies in September, with the macro subindex advancing 0.4%. Quantitative CTA strategies led the way, up 1.4% for the month.

HFR said CTAs benefitted both from long fixed income exposure as yields sharply declined, and from short exposure to commodities, including oil.

Led by declines in Latin America, the HFRI Emerging Markets Index fell by 1.9% in September, bringing year-to-date performance to -5.7%.

HFR president Kenneth Heinz said in a statement that hedge fund performance dispersion had recently expanded, with a combination of categorical strategy characteristics that contributed to large differentiation between the best and worst performing funds.

“Funds which have positioned for macroeconomic uncertainty and market volatility are expected to attract interest from investors looking to access alternative equity and credit exposures,” Heinz said.

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