The $3.24 trillion hedge fund industry produced its best one-year performance in a decade, data released Wednesday by Hedge Fund Research showed.
The HFRI Fund Weighted Composite index returned 10.4% in the 12 months ended Dec. 31, the highest since 2009 when the index returned 20%. By contrast, the index was down 4.8% in the year ended Dec. 31, 2018.
On a quarterly basis, the HFRI FWC index was up 3.5% in the three months ended Dec. 31, compared to a decline of 0.6% in the previous quarter and a decline of 6% in the fourth quarter of 2018.
The HFRI Asset Weighted Composite index was up 7.7% in the 12 months ended Dec. 31 compared with a drop of 0.7% in the previous year. In the quarter ended Dec. 31, the HFRI AWC index was up 2.5% compared with a rise of 0.3% in the previous quarter and a decline of 2.4% in the fourth quarter 2018.
The best-performing HFR index in the year ended Dec. 31 was the HFRI EH: Healthcare index, which returned 23.4%, followed by the HFRI ED: Activist index, with an 18.3% return; and the HFRI EH: Fundamental Value index held third place with a 16.4% return.
The HFRI ED: Multi-Strategy index was the only HFR hedge fund strategy to produce a negative return — down 1.1% — in the year ended Dec. 31.
"Hedge funds posted the highest annual performance since the financial crisis recovery as powerful risk-on sentiment dominated not only December, but most of 2019 with risk parity and the highest beta strategies leading industry gains," said Kenneth J. Heinz, HFR's president, in a news release accompanying HFR's Dec. 31 index data.
"While the core U.S. economy and employment remains strong, the 2020 outlook reflects positive but tempered expectations as a result of rising geopolitical risks and increasing conflict in the Middle East, continuation of trade tariff negotiations and the uncertainty of the U.S. (presidential) election," Mr. Heinz said. "Funds positioned for this dynamic, global, opportunity-rich environment are likely to lead industry performance and growth in 2020."