Hedge fund performance gains accelerated through February, again driven by Macro and Equity Hedge funds, as complex risks evolved throughout the month, according to HFR.
Extending the trend from 4Q25 and January, hedge funds successfully navigated heightened risk-on and risk-off volatility in February, driven by weakness in legacy technology and software companies threatened by AI, weakness in the private credit sector, and surging geopolitical risk in the buildup to the military conflict in Iran, which began on February 28.
The HFRI Fund Weighted Composite Index® (FWC) advanced +1.9 per cent in February, the tenth consecutive month of performance gains, again led by trend-following and commodity Macro funds, as well as energy and healthcare Equity Hedge funds, as reported today by HFR.
“Financial market risk sentiment oscillated between risk on and off throughout February, before ending the month on a strong risk off trend that accelerated into early March. Hedge funds posted strong, positive (negatively correlated) performance in February, led by Macro and Equity Hedge funds as volatility increased throughout the month driven by AI-related equity market weakness, pressure in private credit portfolios, and rising tensions across commodity and equity markets in the late month military buildup leading into the Iran military conflict,” says Kenneth J. Heinz, President of HFR.
“Geopolitical risk has surged to a historic level and hedge funds are actively navigating an unprecedented spike in financial market volatility and dramatic dislocations through the first week of March, which may not only continue but accelerate based on the developments and evolution of the military conflict in Iran. With volatility and risk likely to continue in coming weeks, investors interested in opportunistic, defensive exposure to these powerful trends are likely to allocate to hedge fund managers which have demonstrated strong performance through high risk and high volatility trading environments.”
Driven by commodity, trend-following, and equities exposures, the HFRI Macro (Total) Index advanced +3.0 per cent in February, following a January gain of +4.15 per cent which was the strongest monthly return for the index since May 2003. The February gain extends its positive performance streak to nine months, an index increase of +17.9 per cent over that period. Macro sub-strategy performance was led by the HFRI Macro: Commodity Index, which climbed +4.1 per cent in February, and the HFRI Macro: Systematic Diversified Index, which added +3.7 per cent for the month. The HFRI Macro (Asset Weighted) Index added +1.4 per cent in February, while the HFR Cryptocurrency Index fell -10.6 per cent for the month, its largest decline since February 2025.
Equity Hedge funds, which invest long and short across specialized sub-strategies, also posted strong gains in February, once again navigating intense intra-month volatility and rapidly shifting risk sentiment. The HFRI Equity Hedge (Total) Index advanced +2.35 per cent in February, driven by a range of energy, healthcare and fundamental exposures. EH sub-strategy performance was led by the HFRI EH: Energy/Basic Materials Index, which surged +4.6 per cent for the month, while the HFRI EH: Healthcare Index jumped +3.7 per cent. The HFRI EH: Fundamental Growth Index also posted strong February performance, gaining +3.2 per cent, while the HFRI EH: Fundamental Value Index added +2.1 per cent for the month.
Fixed income-based, interest rate-sensitive strategies advanced in February as interest rates declined. The HFRI Relative Value (Total) Index returned +0.7 per cent for the month, led by the HFRI RV: Yield Alternatives Index, which gained +2.1 per cent, while the HFRI RV: Volatility Index added +1.2 per cent.
Event-Driven strategies also advanced in February, driven by expectations for strong M&A and IPO environments in 2026, and despite weakness in private credit strategies. The HFRI Event-Driven (Total) Index gained +0.3 per cent for the month, led by the HFRI ED: Distressed Index, which returned +1.9 per cent, and the HFRI ED: Special Situations Index, which added +0.9 per cent.
Liquid Alternative UCITS strategies also posted gains in February, as the HFRX Global Index advanced +0.44 per cent, while the HFRX Market Directional Index added +0.2 per cent for the month. HFRX main strategy performance was led by the HFRX Macro/CTA Index, which gained +1.4 per cent, driven by the sub-strategy HFRX Macro: Systematic Diversified CTA Index, which advanced +2.1 per cent for the month. However, through the first few days of March, the HFRX Global Index declined as volatility surged, driven by escalation of the military conflict in Iran, with the Index falling -1.2 per cent MTD through March 4 (most recent data available at time of publication), while the HFRX Absolute Return Index declined -0.4 per cent over the same period. The HFRX Macro Index declined -2.26 per cent MTD, while the HFRX Relative Value Index fell -0.38 per cent MTD, both MTD through March 4.
Hedge fund performance dispersion contracted in February, as the top decile of the HFRI FWC constituents advanced by an average of +10.0 per cent, while the bottom decile of constituents fell by an average of -4.7 per cent, representing a top/bottom dispersion of 14.7 per cent for the month. By comparison, the top/bottom performance dispersion in January was 18.2 per cent. For the trailing 12 months ending February 2026, the top decile of FWC constituents gained +109.5 per cent, while the bottom decile declined -9.5 per cent, representing a top/bottom dispersion of 119.0 per cent. Approximately 75 per cent of hedge funds produced positive performance in February.
