According to eVestment, a strong dollar and falling energy prices benefit systematic strategies, credit funds limp into year end.

Aggregate hedge fund performance was -0.15% in December, the industry’s fourth monthly decline in the second half of 2014. The drop brought Q4 performance to a virtually flat level, 0.03%. For the full year 2014, hedge funds returned an aggregate of +2.48%.

Managed Futures returns +8.63%; best perfomer in 2014

With their best quarterly return since Q4 2010 (six months prior to the first stage of the European sovereign crisis), managed futures strategies ended 2014 as the best performing major hedge fund strategy, returning +8.63% in 2014. The last year managed futures produced industry leading performance was 2008.

Managed Futures Hedge funds Large Hedge Funds

Hedge fund investors have shied away from managed futures strategies in recent years to a greater degree than any other segment of the industry. This has likely been due to relative underperformance prior to 2014, and the funds not being a natural replacement for traditional strategies for institutional investors. However, it is in the universe’s favor heading into 2015 that the largest managed futures funds performed far better than their peers in 2014, returning an average of nearly 14%.

Large Hedge Funds wins

Credit focused strategies have not enjoyed the recent global volatility and apparent risk-reduction which have favored managed futures funds. With further declines in December, -1.69%, the universe’s fifth drop in the last six months, credit funds ended 2014 +0.55%, their worst year since 2008 and second worse since 1998.

December capped a difficult quarter for strategies focused on equity markets and across the corporate capital structure. For the month, long/short equity funds were -0.71%, event driven funds declined -0.24% and convertible arbitrage managers returned -0.07%.

Long/short equity funds returned only +1.46% in 2014, their lowest positive year since at least 2001. Keeping the theme of larger funds outperforming in 2014, $1 billion+ long/short funds returned 168 basis points more than their sub-$1 billion peers, +2.90% vs. +1.22%.

Event driven funds end flat

Event driven funds ended the year nearly flat, returning only +0.62% in aggregate for 2014. Large event driven funds performed noticeably better during the year, which is important given the large amounts of assets which came into the space during the year, particularly into the largest managers. $1 billion+ event driven funds ended the year with an average return of +2.26%.

Activist hedge funds, a sub-set of event driven, outperformed their peers in 2014 returning +2.97%, despite a decline of -0.91% in December. Performance was volatile during the year, as would be expected for funds which tend to be concentrated among few positions. The only major segment of the industry that produced greater volatility during the year was large managed futures funds.