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Hedge Funds Gain During Stormy January

Tom Burroughes

11 February 2021

Hedge funds gained during January, a turbulent month for the stock market that saw drama around US games retailer . The top decile of the HFRI gained 11.6 per cent, while the bottom decile fell by 7.8 per cent for the month. As reported previously, total hedge fund capital rose to $3.6 trillion at the beginning of 2021, rising from $290 billion in the fourth quarter - the largest asset growth in industry history. 

Event-driven strategies, which often focus on unloved, deep value equity strategies and situations, led strategy performance in January, with the investable HFRI 500 Event-Driven Index rising by 3.0 per cent for the month, while the HFRI Event-Driven (Total) Index gained 2.8 per cent. 

The fixed income-based HFRI Relative Value (Total) Index gained 1.3 per cent in January, while the HFRI 500 Relative Value Index advanced by 1.2 per cent for the month, led by the investible HFRI 500 RV: Fixed Income-Convertible Arbitrage Index, which jumped 3.5 per cent, and the HFRI RV: Yield Alternatives Index, which added 4.0 per cent.

Following the 2020 surge, 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 and HFR Cryptocurrency Index each surged by 48.0 per cent in January. In recent weeks, bitcoin has risen sharply, trading over $46,000 per coin as of 10 February.

Through intense stock volatility, the HFRI Equity Hedge (Total) Index advanced by 0.8 per cent for the month. 

Separately, figures from the research firm, , showed that hedge fund returns came in at 16.3 per cent in 2020, edging ahead of the 16.26 per cent gain in the S&P 500 PR Index (although hedge fund returns and those of listed equities are not strictly comparable).

Equity was the best performing hedge fund strategy with a +19.64 per cent return, Preqin said.

“For much of 2020, hedge funds paid a collective price for underperformance in previous years. Investors took money out of the industry and put it into lower-cost vehicles like UCITS or ETFs. However, after nine consecutive quarters of outflows, Q3 2020 marked the first quarter of net inflows, bringing much-needed optimism to the hedge fund industry,” David Lowery, head of research insights at Preqin, said.