Hedge fund industry posts best performance since 2009

Hedge funds finished a tumultuous year of trading with double-digit returns, the best annual performance since 2009.

The industry coped with the economic and social shocks of the global pandemic, political uncertainty, and high volatility throughout the year and extended strong November gains into December.

The global Eurekahedge Hedge Fund Index was up 11.77% for the year, following a gain of 3.41% in December 2020.

HFR’s main Fund Weighted Composite Index – a global, equal-weighted measure of some 1,400 single-manager hedge fund strategies – gained 4.5% in December, pushing its full-year return to 11.6%.

The investable HFRI 500 Fund Weighted Composite Index surged 3.5% last month and 9.8% for the year, topping both the Dow Jones Industrial Average and the FTSE 100 indices, hedge fund research and indices provider HFR reported.

Meanwhile the NASDAQ Composite was up 5.65% in December, bringing its 2020 return to 43.64% compared with 19.30% for the S&P 500.

The full-year hedge fund gains included a first quarter decline of 11.6% after three consecutive months of losses at the onset of the coronavirus pandemic.

The strong performance of the HFRI Fund Weighted Composite Index, which followed a 10.45% annual return in 2019, is likely to increase investors allocations to the industry, said Kenneth J. Heinz, president of HFR.

“Leading institutions are likely to continue expanding allocations to hedge funds as a preferred portfolio mechanism to opportunistically participate in these dynamic trends while mitigating inherent risks with specialized, tactical long-short exposures.”

This was confirmed by the Investor Intentions report by HFM and the Alternative Investment Management Association. Based on a survey of 65 investors with US$3.8 trillion in investor assets, the report found that more than 45% of investors plan to increase their allocation to hedge funds, while more than half said they will maintain their allocation to alternative investments.

HFR’s Heinz said, “Hedge funds effectively navigated both December and calendar year 2020 volatility, and accelerated into 2021 with powerful, broad-based performance which continued yet broadened the high beta Equity- and Crypto-driven gains to also include quantitative, trend-following Macro, Energy and Special Situations exposures.”

Equity hedge strategies performed strongly in December, up 5.5% in December, and 14.5% in the last two months of 2020, with full-year gains of 17.5%

Blockchain and cryptocurrency exposures continued to deliver strong performance as cryptocurrencies hit record highs and as hedge funds increasingly incorporated related exposures into new and existing fund strategies.

The HFR Blockchain Composite Index returned 18.6% in December, pushing the full-year performance to 190.1%. The HFR Cryptocurrency Index increased 18.3% for the month.

Heinz said, “With the strong performance, hedge funds are continuing to evolve with the shifting geopolitical risk and macroeconomic opportunity set, with certain trends accelerating into the new year, while others reverse or evolve with greater clarity on vaccine and political outcomes.”

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