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Fourth quarter pulls down hedge funds for year

Returns in December top the S&P 500

Hedge fund industry performance wound up in negative territory for 2018 following three straight months of negative returns, data from Hedge Fund Research Inc. show.

The HFRI Fund Weighted Composite index returned -4.07% in the 12 months ended Dec. 31, while the HFRI Asset Weighted Composite index returned -0.84%.

For the nine months ended Sept. 30, the fund weighted composite index had returned 1.45%, but returns of -3.15%, -0.3% and -1.97%, respectively, for the months of October, November and December brought the year-end numbers down. Still, the HFRI Fund Weighted Composite index did outperform the S&P 500 index (which returned -9.2%) for December, noted Kenneth J. Heinz, president of Hedge Fund Research, in a news release.

"Hedge fund outperformance trends in December represent an industry milestone, with the HFRI exhibiting not only the highest level of outperformance of steep equity market losses in nearly a decade, but with certain strategies posting positive performance through the worst equity market decline since February 2009," Mr. Heinz said. "Macro funds, highlighted by trend-following CTA strategies, demonstrated their integral contribution to institutional portfolio composition, as well as drove strategy and asset-weighted performance industrywide. December gains and defensive outperformance are likely to not only fundamentally change the context of hedge fund performance in 2018, but attract investor capital under the expectation of these volatile, powerful trends continuing through 2019."

In contrast, the HFRI Fund Weighted Composite index returned 8.59% for the year ended Dec. 31, 2017, while the HFRI Asset Weighted Composite index returned 6.66% during the same period.

Year-end returns of HFR's broad hedge fund strategy indexes for 2018 were:

  • HFRI Relative-Value (Total) index, 0.66%.
  • HFRI Event-Driven (Total) index, -1.73%.
  • HFRI Macro (Total) index, -3.21%.
  • HFRI Equity Hedge (Total) index, -6.9%.