With few exceptions, only macro and managed futures hedge fund strategies produced positive performance in the quarter ended March 30, data released Tuesday by Hedge Fund Research showed.
The year-to-date return of the HFRI Fund Weighted Composite index slumped 8.3% and the HFRI Asset Weighted Composite index fell 8.5%.
In contrast, all but four HFR hedge fund indexes showed positive performance in the fourth quarter of 2019, with the HFRI Fund Weighted Composite index up 3.6% and the HFRI Asset Weighted Composite index up 2.3%.
The year-end 2019 return of the HFRI Fund Weighted Composite index was up 10.5% and the HFRI Asset Weighted Composite index was up 7.6%.
Monthly losses in both HFR broad indexes increased throughout the quarter, with the HFRI Fund Weighted composite falling 0.4% in January, 2.2% in February and 5.9% in March, while the HFRI Asset Weighted composite declining 0.1% in January, 2.4% in February and 6.1% in March.
HFR researchers said in the report that in March "hedge funds experienced a historical dispersion of performance for the month ... with the top-decile HFRI constituents posting an average gain of 18.5% while the bottom decile fell an average of 30%."
HFR President Kenneth J. Heinz added: "Financial markets experienced a historic spike in volatility in March as the spreading coronavirus pandemic drove steep losses across global equities and energy commodities as well as an indiscriminate flight to quality across fixed income and currencies."
Of HFR's 36 hedge fund indexes, only seven produced positive returns in the quarter ended March 31. Five of those strategies were in HFR's macro strategy category, HFR data showed.
The broad HFRI Macro (Total) index returned 1.2% in the quarter and the HFRI Macro (Total) Asset Weighted index was down 1.9%.
Contributing to the positive return of HFR's fund-weighted macro composite was the 5.7% return of the HFRI Macro Currency index; HFRI Macro Discretionary Thematic index, up 3.9%; HFRI Macro Commodity index, 2.4%; and the HFRI Macro Systematic Diversified index, 2.1%.
The HFR Event Driven Multi-Strategy index had the highest return of all the HFR indexes in the quarter ended March 31, up 8.4%, the only equity hedge fund strategy to produce a positive return over the period. The HFRI Relative value Volatility index also was up 0.2%.
Returns of HFRI's other strategy categories in the first quarter all were negative based on total index returns:
- The HFRI Event-Driven (Total) index was down 15% and the HFRI Event-Driven (Total) Asset Weighted index fell 15.98%.
- The HFRI Equity Hedge (Total) index was down 13% and the HFRI Equity Hedge (Total) Asset Weighted index fell 13.9%.
- The HFRI Relative Value (Total) index was down 4.1% while the HFRI Relative Value (Total) index was down 3.5%.
Returns of all but one HFRI hedge fund index — the Relative Value Yield Alternative index, which slid 30.2% — were better than the 20% decline of the S&P 500 index in the first quarter of 2020.
"In many respects March and 1Q20 reflect a sharp and volatile reversal of the risk-on environment which dominated 2019, underscoring the importance of maintaining a diversified alternatives portfolio," HFR's Mr. Heinz said. "Macro and trend-following strategies are likely to continue to lead industry performance with models evolving to effectively capture dynamic, fluid and shifting trends as the pandemic progresses."