The latest report on hedge fund performance from industry data provider Hedge Fund Research, Inc showed that the more than $3 trillion asset class turned in the worst performance since January 2016, ending a streak of 15 consecutive monthly gains.
HFR’s widely-followed HFRI Fund Weighted Composite Index® lost -1.8 percent in February 2018, though comfortably outperforming underlying markets as strong earnings and economic data were not enough to quell jitters from higher interest rates in the United States.
While all main strategies dropped in February, industry performance was led by macro strategies, according to Hedge Fund Research. The HFRI Macro (Total) Index lost -3.9 percent, the biggest monthly loss since February 1994.
Equity hedge funds also marched lower, with the HFRI Equity Hedge (Total) Index falling -1.5 percent, led by energy and emerging markets. The index returned 1.4 percent year-to-date through February 28, down from 3 percent in the first month of 2018.
Cryptocurrency funds also declined, though they pared steep intra-month losses as many cryptocurrencies partially recovered by month-end. The HFR Blockchain Index fell -9.5 percent for the month.
Yet, amid the overall weak performance in the hedge fund sector, there were some bright spots. Notably, Technology Index gained +0.4 percent, bringing the YTD Index return to +4.8 percent.
In addition, February’s drop could be overshadowed by March’s shakeout, that has seen stocks from the U.S. to Asia plunge, rebound then fall anew, while bonds and currencies have also fluctuated wildly. That could help funds that thrive on volatility, while investors who have taken short positions may be hurt.
Commenting on the results, Kenneth J. Heinz, President of HFR said: “Hedge funds declined in February for the first time since October 2016, as long latent global equity market volatility soared and US interest rates increased, with certain hedge fund sub-strategies posting impressive, negatively-correlated gains through the volatility spike.”
He continued: “Despite the decline, the thematic drivers of hedge fund performance have not changed and, in fact, may actually have accelerated throughout the month. US inflation and interest rates, trade negotiations and the newly proposed tariffs, corporate HFR / Page 3 M&A, and continued application of blockchain technology are likely to drive industry performance, creating both long and short opportunities, throughout 2018.”