HFRI Monthly Indices: December and Year End 2012

Date: Wednesday, January 9, 2013
Author: HFRI

HFRI tops equity markets for 4Q, closes year with 6th gain in 7 months;
Relative Value Arbitrage leads industry in 2012 on MBS/ABS gains; Quantitative Macro lags

CHICAGO, (January 8, 2013) - Hedge funds climbed in December as equities posted strong gains on the year's final trading day in anticipation of the passage of legislation to avert the U.S. Fiscal Cliff. The HFRI Fund Weighted Composite Index gained +1.3 percent for the month, bringing FY 2012 performance to +6.2 percent, according to HFR, the established global leader in the indexation, analysis and research of the global hedge fund industry. The HFRI Fund Weighted Composite Index posted gains in six of the year's final seven months, approaching the index's record high value.

Event Driven led industry strategy performance gains for December with strong contributions from a dynamic M&A environment, accessible credit markets and tightening high yield credit spreads, as the HFRI Event Driven Index gained +1.63 percent. The ED Index advanced +8.5 percent in 2012, ending the year with seven consecutive monthly gains. Activist & Distressed exposures led Event Driven sub-strategy contributions in 2012, with gains of +20.2 and +10.4 percent, respectively. The HFRI Equity Hedge Index gained +1.6 percent in December, ending 2012 with gains in 6 of the last 7 months, and bringing FY performance to +7.4 percent.

The HFRI Macro Index posted a gain of +1.0 percent in December, concluding 2012 with a decline of -0.2 percent. Macro performance was undermined in 2H12 by trend-following Systematic Macro CTA exposure, with the HFRI Macro: Systematic Diversified Index declining -2.5 percent for 2012, this after gaining +2.4 percent in the first 5 months of the year. Emerging Market exposure offset Currency and Commodity weakness, with the HFRI Emerging Markets Index gaining +3.3 percent for December and +10.3 percent for 2012.

Fixed Income-based Relative Value Arbitrage (RVA) led hedge fund strategy performance for 2012, with the HFRI Relative Value Index gaining +10.0 percent, inclusive of a gain of +0.7 percent for December. RVA strategies include exposure to various Arbitrage and Credit Multi-Strategy funds, including Corporate, Convertible, Sovereign, Asset-Backed and Volatility arbitrage strategies. RVA has continued to attract investor capital in recent quarters with steady, consistent performance; the RVA Index has posted gains in 41 of 48 months since December 2008. RVA also led hedge fund strategy performance in 2011 and 2009, trailing only Event Driven in 2010. The HFRI FI: Asset Backed Index led all hedge fund sub-strategies for 2012 with a gain of +16.5 percent, as continued low risk-free rates, tightening credit spreads and bond purchases through quantitative easing programs were all supportive performance trends during the year.

"With the conclusion of 2012, the hedge fund industry has evolved and advanced for four years since the Financial Crisis in December 2008, with powerful trends continuing to define and shape the significance and influence of the hedge fund industry on financial markets, asset pricing and investors in 2013," stated Kenneth J. Heinz, President of HFR, "The hedge fund industry is now larger, more sophisticated, more accessible, more global, more diversified, more transparent, more efficient and more capable of meeting the requirements of institutional and individual investors in 2013."