HFR reports that hedge funds extended March gains into April, led by strong contributions from credit sensitive and event-focused strategies, as energy commodities surged and emerging markets continued its recovery.
The HFRI Fund Weighted Composite Index® gained +1.0 per cent in April (Index Value 12,322), fully recovering the 1Q decline and lifting 2016 performance to +0.3 per cent. The HFRI Asset Weighted Composite Index added +0.2 per cent for the month.
April performance was led by credit-sensitive, fixed income-based Relative Value Arbitrage strategies, as credit and arbitrage deal spreads tightened and U.S. treasury yields rose for the month. The HFRI Relative Value Index gained +2.1 per cent in April, the strongest month since September 2009, bringing YTD 2016 performance to +1.5 per cent and leading all main hedge fund strategies.
Contributions from credit multi-strategies, high-yield corporate and yield alternative exposures led April performance, as the HFRI Credit Index gained +1.6 per cent, matching similar return from the prior month, while the HFRI RV: FI-Corporate Index added +2.0 percent. The HFRI RV: Convertible Arbitrage Index advanced +1.6 percent in April, while the HFRI RV: Yield Alternative Index gained +6.9 per cent, as energy infrastructure partnerships recovered from 1Q declines. The HFRI Relative Value-Asset Weighted Index gained +1.6 per cent for the month.
HFR writes that led by Distressed and Activist exposures, the HFRI Event Driven Index advanced +1.5 per cent in April, recovering early year losses to lift YTD performance to +1.0 per cent. The HFRI ED: Distressed Index gained +3.0 per cent for the month, bringing YTD performance to +1.2 per cent. Similarly, the HFRI ED: Activist Index added +3.2 per cent, also recovering losses from 1Q lifting YTD performance to +1.6 per cent. Merger Arbitrage funds declined for the month, as the proposed Allergan/Pfizer transaction broke, with the HFRI ED: Merger Arbitrage Index declining -0.8 per cent; the Index has posted a narrow gain of +0.1 per cent for 2016.
High beta and energy-focused hedge funds drove the HFRI Equity Hedge Index to a gain of +1.3 per cent in April. The HFRI Technology/Healthcare Index advanced +2.4 per cent, while the HFRI Energy/Basic Materials Index added +5.2 per cent, bringing the Energy Index to a gain of +9.2 per cent for 2016. Emerging Markets also contributed to April gains, as the HFRI Emerging Markets Index advanced +2.3 per cent, lifting the YTD gain for the Index to +1.9 per cent. EM performance was led by exposures to Russia and Latin America, with the HFRI EM: Russia/E. Europe Index gaining +5.2 per cent, and the HFRI EM: Latin America Index adding +4.8 per cent; these Indices lead all categories YTD with gains of +12.4 and +14.5 per cent, respectively.
Macro hedge funds posted mixed April performance, as the Japanese Yen surged against the US dollar and markets discounted a lower probability of a Brexit ‘out’ vote; the HFRI Macro Index declined -0.3 per cent for the month, paring the YTD gain to +1.2 per cent. Currency and trend-following CTA funds posted declines as the HFRI Currency Index fell -0.1 per cent, while the HFRI Systematic Diversified/CTA Index declined -0.8 per cent, paring the YTD gain for the CTA Index to +2.3 per cent. The HFRI Macro: Discretionary Thematic Index advanced +0.9 per cent in April, while the HFRI Macro: Commodity Index gained +1.1 per cent, as Energy commodities surged for the month.
“Hedge funds extended performance gains in April, but with leadership from different sectors and strategies, as performance was driven by a recovery in credit-sensitive Distressed and Energy exposures, with these complemented by gains in Credit Multi-Strategy, Emerging Markets and Technology,” says Kenneth J. Heinz, President of HFR.
“Despite this recovery, downside risks associated with the Brexit vote, US elections, surging Japanese Yen and negative swap spreads still remain as potential catalysts for volatility in coming months. Since the market volatility increased in June 2015, the HFRI has outperformed US equities in eight of 11 months, exhibiting strong capital preservation and positive optionality over this period. Continuation of these performance dynamics is likely to drive global industry growth through mid-2016.”