HFR writes that hedge funds posted mixed performance in February as financial market volatility surged as a result of new trade and tariff policies, with equity market declines led by steep drops in the growth and technology categories.
The HFRI Fund Weighted Composite Index (FWC) declined by -0.47 per cent for the month, as gains in Relative Value Arbitrage and Event Driven strategies were offset by declines in Macro and Equity Hedge strategies.
The HFR Cryptocurrency Index posted a sharp decline of -16.8 per cent in February, as managers navigated a surge in volatility and steep declines across Bitcoin and other cryptocurrencies.
The HFRI Multi-Manager/Pod Shop Index gained +0.92 per cent for the month as managers also navigated the policy and technology volatility.
Hedge fund performance dispersion expanded in February, as the top decile of the HFRI FWC constituents advanced by an average of +6.5 per cent, while the bottom decile fell by an average of -8.3 per cent, representing a top/bottom dispersion of 14.8 per cent for the month. By comparison, the top/bottom performance dispersion in January was 12.1 per cent. In the trailing 12 months ending February 2025, the top decile of FWC constituents gained +31.2 per cent, while the bottom decile declined -15.7 per cent, representing a top/bottom dispersion of 46.9 per cent. Approximately half of hedge funds produced positive performance in February.
Fixed income-based, interest rate-sensitive strategies produced another gain as a cycle of risk off sentiment drove a sharp decline in interest rates, with the HFRI Relative Value (Total) Index advancing an estimated +0.8 per cent for the month, marking the 16th consecutive monthly gain and 29th gain in last 32 months. RVA strategy performance was led by the HFRI RV: FI-Convertible Arbitrage Index, which surged +3.4 per cent for the month, followed by the HFRI RV: Volatility Index, which added +1.1 per cent.
Event-Driven (ED) strategies, which often focus on out-of-favour, deep value equity exposures and speculation on M&A situations, also gained in February, effectively navigating the trade/tariff volatility, with the HFRI Event-Driven (Total) Index advancing +0.3 per cent for the month. ED sub-strategy performance was led by the HFRI ED: Multi-Strategy Index, which jumped +1.4 per cent, and the HFRI ED: Credit Arbitrage Index, which added +1.0 per cent for the month.
Equity Hedge (EH) funds, which invest long and short across specialised sub-strategies, posted a decline for the month as Technology equities suffered steep declines on the trade/tariff volatility, with the HFRI Equity Hedge (Total) Index falling -0.66 per cent. EH sub-strategy gains were led by the HFRI EH: Multi-Strategy Index, which surged +3.1 per cent for the month, the HFRI EH: Equity Market Neutral Index, which gained +0.3 per cent. These were offset by large declines in Technology-focused hedge funds, with the HFRI EH: Technology Index falling -3.9 per cent in February.
Uncorrelated Macro strategies also declined in February as interest rates and commodities declined, with the HFRI Macro (Total) Index falling -1.5 per cent in February. Macro sub-strategy losses were led by the HFRI Macro: Systematic Diversified Index, which fell -2.8 per cent while the HFRI Macro: Commodity Index also fell -2.4 per cent; partially offsetting these the HFRI Macro: Active Trading Index gained +2.0 per cent for the month.
Liquid Alternative UCITS strategies advanced in February, with the HFRX Equal Weighted Index gaining +0.36 per cent while the HFRX Global Hedge Fund Index added +0.28 per cent. Strategy performance was led by the HFRX Relative Value Arbitrage Index, which gained +0.75 per cent.
“Driven by trade and tariff uncertainty, hedge funds navigated volatile equity market trends and reversals in February, with gains across Relative Value Arbitrage and Event Driven strategies, as the HFRI Relative Value Arbitrage posted a record 16th consecutive monthly gain, underscoring the strength of credit multi-strategies and traditional convertible arbitrage exposures through the volatility,’ says Kenneth J. Heinz, President of HFR. “With rapid and violent micro-cycles of oscillating risk off and on sentiment driving extreme volatility and dislocation across equity, fixed income, commodity, currency and cryptocurrency markets, funds remained tactically flexible and opportunistic in positioning with gains across specialised sub-strategies including Active Trading and Volatility. With expectations for a continued rapid pace of policy transitions in coming months, institutions and investors looking for both opportunistic exposure to these trends combined with valuable defensive capital preservation are likely to allocate to funds which have successfully executed their strategies through recent heightened volatility.”
