Emerging Markets gain +5.3 percent, leading broad-based advance

Hedge funds opened 2012 by posting broad-based gains in January, with the HFRI Fund Weighted Composite Index gaining +2.63 percent, the second highest monthly performance figure since December 2010, according to data released today by HFR, the leading global provider of data, analysis and indexation of the hedge funds industry.

Equity Hedge strategies performed the strongest in January, with the HFRI Equity Hedge Index gaining +3.84 percent, led by Fundamental Growth, Value and Energy/Basic Materials sub-strategies. Event Driven and Relative Value Arbitrage strategies posted gains of +2.4 percent and +2.3 percent, respectively, with contributions from ED: Special Situations and Activist funds, as well as RV: Yield Alternative and Convertible Arbitrage exposures. Macro strategies posted a gain of +1.1 percent, with strong contributions from Discretionary strategies, and complemented by gains in quantitative, trend-following strategies. Both Currency and Commodity focused hedge funds posted January gains despite underlying asset volatility; the HFRI Macro: Systematic Diversified Index posted a gain of +0.32 percent. The lone sub-strategy of negative industry performance was Equity Hedge: Short Bias, which declined by -8.3 percent in January, following a
+0.4 percent gain in FY2011.

After trailing other strategies in 2011, hedge funds investing in Emerging Markets experienced a sharp reversal to start 2012, with the HFRI Emerging Markets Index gaining +5.3 percent, its strongest performance since May 2009, when it returned +9.6 percent. Hedge funds focusing on Russia/Eastern Europe and Latin America exposures led EM performance, with these gaining +9.2 and +6.9 percent, respectively.

“January performance for hedge funds was driven by a number of positive factors, with these generally constituting a reversal of the cyclically high levels of risk aversion which influenced not only fundamental asset price convergence, but also capital allocations by leading investors throughout 2011,” said Kenneth J. Heinz, President of HFR. “While equity markets are off to a strong start, investors should remain cognizant of the dynamic risk environment across currencies, commodities, strategic acquisitions, fixed income and emerging markets which will continue to create opportunities both long and short throughout 2012.”