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Hedge Funds’ Q1 Return Extends Run of Positive Performance

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Hedge funds concluded a first quarter that saw gains in all three months, extending a stretch of positive performance in which industry returns rose for 12 of the last 13 months, Hedge Fund Research reported Friday.

The HFRI Fund Weighted Composite Index advanced 0.2% in March, topping the performance of both the S&P 500 and DJIA, and bringing year-to-date performance to 2.3%.

“Hedge funds gained in March as the Federal Reserve proceeded with a widely anticipated interest rate increase concurrent with a weakening of the Trump trade, and as U.S. equities concluded a strong first quarter with mixed performance in March,” HFR president Kenneth Heinz said in a statement.

The HFRI index finished 2016 up 5.6%, raising its value to a record 12,966. The March gain extended the index value to 13,252, the fourth consecutive monthly record.

Equity hedge led all strategies in March, up 0.6% and up 3.6% for the year to date, as U.S. equities recorded mixed performance.

HFR reported that the technology, fundamental growth and health care substrategies contributed to the March return, up 2.7%, 1.2% and 1.1%, respectively, while the short bias substrategy lost 1.5%.

Fixed income-based relative value arbitrage strategies also turned up winners in March for the 13th consecutive month, despite the Fed’s rate hike, up 0.5% and up 2.5% for the year.

Volatility substrategies advanced 2.1%, and credit multistrategy funds gained 0.3%.

Event-driven, the top performer in 2016, was flat in March, bringing year-to-date performance to 2.2%. Gains of 0.4% and 0.3% by merger arbitrage and special situations were offset by distressed funds’ 0.9% decline.

Macro fell 0.5% in March, and is down 0.2% for the year. Currencies led substrategies, up 2.7%, while commodity trading advsors lost 1.4% and commodity funds 0.4%.

“In a similar manner to the 2016 intra-year market cycles that were driven by Brexit and the U.S. election, 2017 financial market performance is likely to be driven by similar intra-year cycles, including upcoming European elections,” Heinz said.

These will contribute to and create opportunities for hedged long/short strategies across different asset classes, he said. “Funds positioned for this environment are likely to lead industry growth and performance in 2017.”

— Check out Madoff Deals Locked in Safe at Center of U.K. Hedge-Fund Lawsuit on ThinkAdvisor.