The $3 trillion hedge-fund industry posted gains of 1.93% in February. It was the biggest monthly advance since February of last year, according to the research firm eVestment. The Bloomberg Global Aggregate Hedge Fund Index (an index weighted by market capitalization which tracks over 2,400 funds), reported returns at 0.18%..
Coming back to the data compiled by the investment consultancy, the returns obtained are due to the good performance of the equity markets. In line with this, the S&P 500 has done a great job in that month, gaining more than in three years.
Hedge Fund Strategies
Global macro hedge funds make broad market bets on indices, currencies, commodities, and other asset classes based on expectations about specific markets and asset classes. In particular, macro funds, which trade a range of assets to try to profit from macroeconomic trends, performed better than their managed futures peers in February, returning an average of 0.76% during the month. Managed futures employ quantitative models to speculate in futures (commodities, equities, currencies, interest rates, etc). Although these funds provide the most diversification and hedging benefit of all the hedge fund strategies, they lost path against the macro funds. They posted a return in February of 0.12%.
Activist hedge funds, which make a large enough investment in a company and are able to participate in the management and firm decision making; posted large gains in February, 5.37%. This return has helped to offset the great loss registered in January.
Emerging market funds, which invest in equity securities in such markets and operating with short-selling restrictions and limited availability of derivatives, continue to post mixed results due to several risks in those areas. For example, they benefitted from Russian exposure in February, but lost with Brazil focused funds.
Credit strategies also reported gains, with a 1.32% increase in February. A major exposure to European markets and the ECB’s quantitative easing program could be behind those results.
Final Comment
Hedge funds look particularly attractive for a diversifier investor. The fact that the hedge fund universe includes a wide variety of financial asset strategies makes it difficult for them to outperform in a bullish market.
Hedge funds have not been able to beat the market in the latest years.Â
Disclosure: Omar Venerio holds no position in any stocks or funds mentioned.
