The hedge fund industry produced an aggregate return of positive 1.93% in February, the industry’s best monthly performance since February of last year. The primary driver of hedge fund returns in February were rising equity markets, highlighted by the S&P 500’s best month in more than three years.

Every major hedge fund strategy posted positive returns for the month of February, with activist funds leading the industry and managed futures lagging, but still positive. February’s returns erased any remnants of January’s losses from primary strategies.

Hedge Funds

Aggregate managed futures funds post slight gains

Aggregate managed futures funds’ performance was only slightly positive in February, 0.12%, the group’s fourth consecutive positive month. Continued strengthening of the USD, albeit at a muted rate, with sharp reversals among the major trends of declining oil prices and interest rates in February likely explains February’s near flat returns.

The universe of global macro funds performed slightly better than their managed futures peers in February, returning an average of 0.76% during the month. Among the group, returns in February showed a separation between managers employing fully discretionary approaches to position generation, 1.20%, compared to those operating more systematic approaches, -0.01%. This is another example of how February’s major directional shifts in certain commodities and interest rate markets hurt systematic, trend following strategies.

Hedge Funds

Large gains from activist hedge funds

Activist hedge funds posted large gains in February benefiting from surging equity valuations, rising 5.37%. Due to January’s elevated loss of -3.61%, the group’s returns are in-line with the industry’s average, but the strategy’s inherent volatility has been evident in 2015.

Credit strategies’ 1.32% increase in February stopped a string of five consecutive monthly losses, during which the group had its worst drawdown since the financial crisis. The largest gains in February came from funds posting the largest losses in the prior two months, an indication of exposure to European high yield markets which had sold off in prior months, but rebounded in February from investors’ return of risk appetite influenced by the prospects of the ECB’s QE program.

Hedge Funds

Emerging market-focused hedge funds continue to post mixed results as idiosyncratic risks by country or region have become the dominant EM theme. Exposure to Russia, and its dual commodity and geopolitical risks, benefited from a massive rebound in February, with average returns of 21.69%. Brazil-focused funds are following two consecutive years of annual losses with a difficult start to 2015, -1.59% in February and -6.27% in the first two months of 2015.