S&P 500 still reigns supreme even as the hedge fund industry extends its winning streak; against a backdrop of rising stock markets in developed countries, most hedge funds posted positive performances in February according to the latest report from Natixis. Emerging market hedge funds are the top performers up 4.0% year to date, but still trail the S&P 500, which is up 6.0% (performance through February 20th for all YTD data cited).
The renewed risk aversion seen during the month (the Natixis Risk Perception Index closed the month at 48%, i.e. up 17 percentage points), linked to the Italian elections and/or to fears about automatic cuts (sequestration) in US government spending, therefore did not prevent investors from remaining in risk-on mode. All in all, the hedge fund industry was able to take advantage of this environment and recorded a positive monthly performance for the fourth month in a row: +0.1% for the HFRI index and +0.2% for the DJ Credit Suisse index.
Distressed funds topped the ranking in February with a performance of 1%. They were closely followed by Equity Market Neutral as well as by relative value and arbitrage strategies such as Relative Value Arbitrage, Fixed Income Arbitrage and Event Driven, which reported performances between 0.5% and 0.7%. While the former benefited from the increase in stock market volatility (+1 and +2 points for the VIX and the VDAX, respectively), the latter were able to take advantage of the favorable bond and equity directional. High Yield funds were up 0.3%.
Long equity bias strategies posted a positive performance (+0.1% and +0.5% for Long/Short and Emerging strategies, respectively) driven by the good performance of developed stock markets as a whole (+1% for the S&P 500 (INDEXSP:.INX) and the Stoxx, +4% for the Nikkei). CTA funds (-0.8%) were negatively affected by the significant sell-off in commodities (-4.4% for GSCI). Moreover, an analysis of the dynamic exposure of CTA managers shows a short positioning in the US dollar and developed equities, which also explains the poor performance of these strategies. Global Macro, which benefited from their high exposure to US Treasuries, reported a performance of +0.3% for the month.