Hedge funds posted mixed declines in September as investor risk tolerance fell over uncertainty regarding renewed coronavirus spreading in Europe and the US, the strength of the US economy and the upcoming US election, Hedge Fund Research (HFR) reported.

The investable HFRI 500 Fund Weighted Composite Index declined by 0.95% for the month. The HFRI Fund Weighted Composite Index (FWC) also fell, by 1.2%, in September, the first monthly decline since March.

Kenneth J. Heinz, president of HFR, said “hedge funds effectively navigated a volatile September”. Led by event-driven and fixed income-based relative value strategies, hedge funds outperformed global equity market declines driven by the rising number of coronavirus infections and upcoming US election uncertainty.

The tech-heavy NASDAQ and S&P 500 were down 5.16% and 4.10% during the month, respectively. In the UK, the FTSE 100 retreated 1.63% in September.

Strategies that outperformed the wider equity markets included healthcare, merger arbitrage, volatility, and credit multi-strategies.

“As has been the case throughout 2020 and as to be expected into 2021, managers remain positioned with opportunistic, tactical flexibility, adjusting exposures to preserve capital in risk-off environments, while aggressively positioning as liquidity providers to benefit from opportunities created by dynamic and fluid shifts in the macroeconomic and geopolitical trends,” Heinz said. “Hedge funds have exhibited powerful financial market leadership in recent months and are likely to continue to attract institutional capital into 2021.”

Returns were mostly negative across regional mandates in September, data provider Eurekahedge noted.

While the Eurekahedge Hedge Fund Index was down 0.57% in September, fund managers focussing on Europe were largely flat, outperforming their North American and Asia ex-Japan peers who were down 0.41% and 0.11%, respectively.

About 42.5% of the underlying constituents of the Eurekahedge Hedge Fund Index posted positive returns in September, and 22.3% of the hedge fund managers in the database were able to maintain double-digit returns over the first three quarters of 2020.

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