HFR: Hedge funds log best first quarter since 2000

Led by crypto, activist, energy and quantitative sub-strategies, the HFRI Fund Weighted Composite Index (HFRI FWC) gained 6.1% in the first quarter, which is the index’s strongest first quarter since 2000 and the fifth strongest first quarter since inception, officials at data provider HFR said.

The team chalked up the gains to exposure to out-of-favor, deep value equities as well as the investor optimism over the broader economic reopening and stimulus spending. Exposure to crypto strategies didn’t hurt either, as the crypto sub index soared over 23% in March alone.

The HFRI FWC reported gains of 17.5% in the trailing five months, which again is the best five-month period since March 2000.

“Hedge funds extended strong performance trends in March, with leadership from deep value, event-driven equities, as well as credit strategies including traditional convertible arbitrage exposures, and were also complemented by cryptocurrency exposure”, said HFR President Kenneth Heinz. “With many equity markets having reached record highs, hedge funds continue to tactically position for fluid macroeconomic and geopolitical developments, with potential for dislocations as a result of dynamic retail trading trends, evolving demand for digital assets, new virus variants and/or financial institution leverage. Funds positioned to opportunistically navigate these powerful and potentially volatile trends are likely to lead industry performance through mid-2021.”

Poised to perform on the current economic optimism are event-driven strategies, which gained 1.85% in March. Leading the way were activist and special situations sub strategies, which tend to trade in deep value equity situations and focus on companies that are targets for restructuring, acquisitions or investor-driven strategy shifts.

Riding the record-breaking equity markets, equity hedge strategies were up 1.1% in March with funds with quantitative, energy and fundamental value exposures topping the leader board.

Inflows have been picking up into the hedge fund space as launch activity ramps up. HFR previously reported that new hedge fund launches increased to the highest level in five quarters in the third quarter of 2020. Officials said that the rise comes as managers and investors are positioned for performance gains and capital growth.