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Macro Gains Fail to Offset HFRI September Declines

Oct 08, 2015 11:37 AM EDT
Hedge funds declined for the fourth consecutive month in September, according to data released today by HFR®, the established global leader in the indexation, analysis and research of the global hedge fund industry.
A girl holds a U.S. and Chinese flag at the White House in Washington. (Reuters)

Hedge funds declined for the fourth consecutive month in September, according to data released today by HFR®, the established global leader in the indexation, analysis and research of the global hedge fund industry. Global equities, commodities and high yield credit posted steep losses, while increased volatility sustained throughout the month. The broad-based HFRI Fund Weighted Composite Index® declined by -1.1 percent in September, the fourth consecutive monthly decline for the Index and the longest such sustained decline since the Financial Crisis in 2008. The performance drawdown of -5.0 percent since June brings the YTD Index performance through September to a decline of -1.3 percent, which still tops the S&P 500 by 400 basis points and the DJIA by over 700 bps. 

September declines were led by equity and credit-sensitive Event Driven (ED) strategies, with the HFRI Event Driven Index posting a decline of -2.5 percent, led by exposure to positions in Glencore, Valeant and high yield credit. The HFRI ED Index has experienced a four-month performance drawdown of -7.0 percent since June, bringing YTD performance to a decline of -3.2 percent. Activist strategies were the weakest area of ED performance for the month, with the HFRI Activist Index falling -5.2 percent, dropping YTD performance to -4.7 percent. 

Uncorrelated Macro strategies partially offset declines across many directional strategies in September, with the HFRI Macro Index advancing +0.4 percent, led by quantitative CTA strategies; the HFRI Macro: Systematic Diversified/CTA Index gained +1.4 percent for the month. CTAs benefitted from long fixed income exposure as yields sharply declined, while also benefitting from short exposure to commodities, including oil. The HFRI: Macro Active Trading Index gained +0.1 percent in September, while the Macro: Multi-Strategy Index posted a narrow decline of -0.4 percent. Led by declines in Latin America, the HFRI Emerging Markets Index fell -1.9 percent for the month, bringing YTD performance to -5.7 percent. 


Equity Hedge (EH) strategies also posted losses for the month, as global equities declined sharply, resulting in the HFRI Equity Hedge Index falling by -1.7 percent. Exposure to the volatile biotechnology sector was only partially offset by gains in Equity Market Neutral and Short Bias strategies, as the HFRI EH: Technology/Healthcare Index declined -3.5 percent, while the HFRI Equity Market Neutral and HFRI Short Bias Indices gained +1.1 and +0.2 percent, respectively. 

As high yield credit spreads widened, fixed income-based Relative Value Arbitrage (RVA) strategies posted declines for the month, with the HFRI Relative Value Index falling -1.0 percent. RVA sub-strategy declines were led by energy infrastructure partnerships (MLPs), as the HFRI Yield Alternative Index fell -6.1 percent in September. Partially offsetting these declines, the HFRI Volatility Index gained +2.4 percent for the month and leads all RVA sub-strategies YTD with a gain of +6.5 percent. 

"Performance declines in September and recent months reflect expanding hedge fund outperformance of global equities as financial market volatility has increased and equity declines have accelerated," stated Kenneth J. Heinz, President of HFR. "Hedge fund performance dispersion also recently expanded, with a combination of categorical strategy characteristics including net exposure, leverage, sector concentration and idiosyncratic positions contributing 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." 

Tags : Hedge Fund Research, S&P 500, DJIA, hedge fund, glencore, global macro, HFRI Fund Weighted Composite Index, event driven, CTAs, 2008 financial crisis, Novus, emerging markets, activist index, Kenneth J. Heinz