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Hedge funds made significant gains during December, bringing to a close a strong year characterised by high volatility and uncertainty, according to Hedge Fund Research.
For the 12 months of 2021, the HFRI Fund Weighted Composite (FWC) Index rose 10.3 per cent, the third-strongest full-year performance since 2009, although it fell slightly short of the 11.8 per cent gains sustained during 2020.
In December, the HFRI 500 FWC climbed 0.9 per cent month-on-month, repairing the decline sustained during November. The HFRI FWC rose 1.3 per cent during December.
Hedge funds investing in cryptocurrencies provided strongest returns during the full-year 2021, with the HFR Cryptocurrency Index growing 215 per cent over the 12 months, surpassing the 193 per cent return generated in 2020.
The performance dispersion between the best-performing and worst-performing decile narrowed during December, contracting to 10.1 per cent from 19.1 per cent in November.
Equity hedge fund strategies had a strong December, with the investable HFRI Equity Hedge Index climbing 1.8 per cent month-on-month and 13.1 per cent for full-year 2021, the strongest performance since 2009.
Fixed income interest-rate sensitive strategies improved their performance over December with interest rates starting to tighten and fund managers positioning themselves for Federal Reserve tapering of bond purchases. The HFRI Relative Value (Total) Index was up 0.3 per cent month-on-month.
Macro strategies also generated positive returns as commodities gained ground with the rise in interest rates.
HFR president Kenneth J. Heinz says: “Led by high-beta strategies of equity hedge, event driven and commodities, hedge funds concluded 2021 with strong performance in December, capping a robust 2-year period and successfully navigating extreme volatility and market cycle dislocations since the inception of the coronavirus pandemic and global quarantine as the total hedge fund industry surpassed US$4 trillion in capital.
“Since and inclusive of the historic equity market collapse from the outbreak of the global pandemic, equity-focused hedge fund strategies have significantly outperformed US equities (as represented by the DJIA) by over 200 basis points and have done so with one third less volatility. Into 2022, hedge fund managers are positioning for continued volatility associated with the global pandemic but are also tactically focused on capital preservation across equity, fixed income and commodity markets considering the powerful dynamics of interest rates and inflation,” says Heinz.
