Hedge funds posted declines in December, led by Energy and Quantitative CTA strategies, to conclude a volatile, turbulent year in financial markets, according to data released by industry researcher HFR.
The year began with major dislocations in currency markets, included steep declines for oil and energy commodities, as well as Emerging Markets, and concluded with rising geopolitical and terrorism threats as well as the first US interest rate increase in nearly a decade.
Oscillating between positive and negative performance throughout the year, the HFRI Fund Weighted Composite Inde posted a decline of -0.85% in December, ending the year down -0.85%, only the fourth calendar year decline in hedge fund performance since 1990.
Despite the decline, an estimated 55% of all hedge funds posted gains for 2015.
Hedge funds outperformed US equities in December, as the S&P 500 and Dow Jones Industrial Averages declined -1.6 and -1.5%, respectively, on a total return basis, while the Russell 2000 declined over -6%.
For FY 2015, US equities were mixed, as the S&P (SPX) and Dow Jones (DJI) indices fell -0.73 and -2.23%, respectively, though on a total return basis, these posted narrow gains of +1.38 and +0.21%, respectively.
Equity Hedge strategies outperformed US equities in December, with steep losses in Energy-focused strategies partially offset by gains in Market Neutral strategies. The HFRI Equity Hedge Index fell -0.6% in December, bringing FY 2015 performance to a decline of -0.4%.
The fixed income-based HFRI Relative Value Arbitrage Index posted a narrow -0.2% decline in 2015 after falling -0.85% in December. However, larger RVA exhibited outperformance, with the HFRI Relative Value Arbitrage Index-Asset Weighted gaining +0.9% for 2015. RVA sub-strategies were led by the HFRI Volatility Index in both December and FY 2015, advancing +0.5 and +7.0%, respectively.
“Low interest rates, steep commodity losses and intense equity market volatility contributed to a challenging environment in 2015, resulting in a wide dispersion between the best and worst performing funds, and a narrow performance decline for the overall hedge fund industry,” stated Kenneth J. Heinz.
“Through this environment and with some variability, the capital-weighted, aggregate industry performance has shown a premium to the equally-weighted performance, resulting in capital-weighted gains across equity- and fixed income-based hedge funds for the year.
“With volatility accelerating into 2016, strategies which have demonstrated opportunistic performance throughout 2015 are likely to lead industry performance and attract investor capital in the new year,” he concluded.