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HFR Kenneth J Heinz

HFR reports hedge funds up in November on back of Trump win

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Hedge fund data provider HFR reports that hedge funds advanced in November, as the surprising victory of Donald Trump in the US Presidential election drove expectations for renewed growth, infrastructure spending and reduced regulation.

The HFRI Fund Weighted Composite Index (FWC) Index gained +0.9 per cent in the month, with the Index Value rising to 12,841.95, the highest level since May 2015 and second highest since inception (1990).

The November advance reverses the decline from the prior month, represents the eighth monthly gain in the past nine months, and brings YTD performance to +4.6 per cent, topping global equities. The HFRI Asset Weighted Index posted a larger gain of +1.2 per cent in November, the fifth consecutive monthly advance and also the eighth monthly gain in the past nine months.

Event-Driven (ED) hedge funds led strategy performance for the month, as US equities rallied to record levels while US government bond yields rose sharply. The HFRI Event-Driven (Total) Index rose +2.2 per cent, the fifth consecutive monthly gain, bringing YTD performance to +9.4 per cent, leading all main strategies. ED sub-strategy performance was led by a strong recovery in Shareholder Activist funds, with the HFRI ED: Activist Index climbing +6.3 per cent, the largest monthly increase since November 2012 and bringing the YTD return to +8.8 per cent. The HFRI ED: Multi-Strategy Index gained +2.9 per cent in November, while the HFRI ED: Distressed Index added +1.6 per cent, leading all ED sub-strategies YTD with a net return of +12.8 per cent.

Equity Hedge (EH) strategies also posted a strong gain for the month as US small cap and energy commodities surged, with the HFRI Equity Hedge (Total) Index advancing +1.5 per cent, reversing an October decline. EH sub-strategy performance was led by the volatile Energy sector, with the HFRI EH: Sector-Energy/Basic Materials Index up +6.2 per cent, the strongest gain since April, bringing YTD performance to +22.8 per cent, the leading area of sub-strategy performance industry-wide. Other EH sub-strategies advanced in November, as the HFRI EH: Quantitative Directional Index climbed +3.7 per cent, the HFRI EH: Fundamental Value Index returned +2.6 per cent, and the HFRI EH: Sector-Technology/Healthcare Index added +2.3 per cent.

The firm writes that fixed income-based Relative Value Arbitrage (RVA) strategies also gained despite the sharp post-election increase in US government bond yields, with the HFRI Relative Value (Total) Index advancing +0.4 per cent, the ninth consecutive monthly gain, bringing YTD performance to +6.4 per cent. The HFRI RV: Yield Alternatives Index led RVA sub-strategy performance in November with a gain of +2.4 per cent; the Index also leads RVA sub-strategy performance YTD with a return of +14.7 per cent. Other positive contributors for the month were the HFRI RV: FI-Asset Backed Index (+0.8 per cent) and the HFRI RV: Volatility Index (+0.5 per cent).

Macro hedge funds posted declines in November, with the HFRI Macro (Total) Index falling -0.2 per cent, paring the YTD gain to +0.3 per cent. Fundamental, commodity, and quantitative trend-following CTA Macro sub-strategies led declines for the month, with the HFRI Discretionary Thematic Index falling -1.7 per cent while the HFRI Systematic Diversified/CTA Index was off -0.5 per cent. The HFRI Macro: Multi-Strategy Index partially offset these losses with a gain of +2.4 per cent.

“Hedge funds advanced to a near record level in November on the surprise Trump victory despite the sharp rise in yields and US Dollar strength, as US equities also rallied to record highs on expectations of a new administration focused on economic growth and reduced regulation,” says Kenneth J. Heinz, (pictured), President of HFR. “While few funds may have predicted the election result, it was a true inflection point with hedge fund performance benefiting from post-election fundamental mean-reversion and convergence predicated on gradually normalising risk-free rates and a pro-business agenda for the coming term. Hedge funds which have tactically adjusted their investment positions for this environment are likely to lead industry performance and growth into 2017.”   

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