Coronavirus and a contentious U.S. Presidential election aside, hedge funds continue to make uncorrelated gains, led most notably as of late by equity hedge and event-driven strategies, according to the latest HFR index figures.
The HFRI Fund Weighted Composite was up 0.4% in October, partially offsetting September’s decline and bringing year-to-date performance to 1.2%, according the firm’s latest data.
“Hedge funds posted impressive performance in October as managers positioned for the U.S. election, with gains inversely correlated to steep equity market declines into month-end, which were concentrated in the technology sector as well as European equities, as governments reimposed lockdowns to better contain the additional spread of the coronavirus,” said HFR President Kenneth Heinz in a statement.
The most intriguing returns within the HFR indices can be found within the HFR Blockchain Composite Index, which surged 10.2%. Equity hedge fund strategies broadly though too topped the DJIA by nearly 500 basis points in October. The investable technology sub-index though has reported a stunning year-to-date gain of 20.6%.
Event-driven saw gains too that buried global equity market declines with sub strategies of merger arbitrage and distressed leading the way.
The HFRI Event-Driven (Total) Index gained 0.5% in October as officials point out that corporate transaction activity is expected to continue to build going into 2021. Investors have been watching merger arbitrage strategies carefully as some funds have had impressive double-digit gains in 2020.
Heinz remarked that institutional investors continue to increase their allocations to hedge funds and drove capital inflows in the third quarter. Investors allocated new capital to the hedge fund industry in the 3Q 2020, the first quarterly net inflow since 1Q 2018, as hedge funds received an estimated net inflow of $13 billion for the quarter, increasing total industry capital to $3.31 trillion.
“Strong defensive industry performance throughout the 2020 volatility is likely to provide powerful momentum driving industry growth and expansion in early 2021,” Heinz said.