Hedge Fund Returns Climbing in 2017

Equity Hedge and Relative Value Arbitrage led the way in Q1.

Hedge funds saw gains in March, topping off a period of positive returns in the first quarter of 2017, according to data from HFR.

The HFRI Fund Weighted Composite Index (FWC) returned 0.24% in March, continuing positive performance for five consecutive months and 12 of the past 13. HFRI was up 1.2% in January and 0.9% in February, with March’s numbers bringing the year-to-date performance to 2.3%. Comparatively, 1Q of 2016 saw a -0.6% decline.

Among HFRI strategy indices, Equity Hedge (EH) has led industry performance so far in 2017. The HFRI Equity Hedge (Total) Index advanced 0.64% in March, compared with 1.86% in January and 1.09% in February. Total gain in the first quarter was 3.62%.

Much of the positive performance in EH was attributed to Technology, Fundamental Growth and Healthcare, according to HFR. In these EH sub-strategies, the HFRI EH: Healthcare Index gained 1.1% in March, bringing its YTD performance to 6.7%. Technology and Fundamental Growth Indexes saw March gains of 2.7% and 1.2%, respectively.

Despite the US interest rate increase, fixed income-based Relative Value Arbitrage (RVA) also came out ahead in March, continuing a 13-month streak of positive monthly gains. The HFRI Relative Value (Total) Index was up 0.53%, with a YTD performance of 2.5%.

In contrast, the HFRI Event-Driven (Total) Index saw only a slight gain of 0.01% in March. Additionally, the HFRI Macro (Total) Index declined -0.48% last month, as it did in January.

“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 US equities concluded a strong first quarter with mixed performance in March,” said Kenneth J. Heinz, president of HFR, in a company news release. 

As in 2016, 2017 financial market performance is likely to be driven by intra-year cycles, Heinz said. Brexit and the US presidential election propelled the 2016 intra-year market cycles, and this year could see similar market cycles from upcoming European elections. This may create opportunities for hedged long/short strategies across different asset classes, he added. 

By Corie Hengst