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Kenneth Heinz, HFR

Energy hedge funds surge to best gain since April 2016

Energy hedge funds soared in May to the best monthly gain since April 2016, leading the performance of the broad-based HFRI Fund Weighted Composite Index, with strong complementary contributions from Healthcare, Energy Infrastructure, and Technology exposures.

The HFRI EH: Energy/Basic Materials Index surged 6.3 per cent in May, leading all indices in the month and bringing the YTD gain to 8.7 per cent, according to data released today by HFR.
The HFRI Fund Weighted Composite Index® (FWC) was up 1.0 per cent in May, the strongest month since January and bringing YTD performance to 1.4 per cent through May. Strong and accelerating gains in the US economy drove HFRI gains, which were tempered by prospects for EU political instability and corresponding rising Italian bond yields. The YTD gain of the HFRI FWC tops the DJIA, as well as German DAX, FTSE 100, MSCI World, Nikkei 225 and Shanghai Composite Index.
Event-Driven funds lead main strategies gains in the HFRI on strong corporate earnings and special situations developments. The HFRI Event-Driven (Total) Index was up 1.7 per cent for the month, led by equity market-sensitive Special Situations and Activist sub-strategies, with the HFRI ED: Special Situations Index advancing 2.9 per cent, bringing its YTD return to 3.8 per cent, while the HFRI ED: Activist Index gained 2.8 per cent in May.
Equity Hedge (EH) strategies with exposure to Energy, Healthcare and Technology also had a strong contribution to HFRI performance in May. The HFRI Equity Hedge (Total) Index advanced 1.6 per cent for the month, the strongest gain since January, and increased its strategy-leading YTD return to +2.4 per cent. In addition to the 6.3 per cent gain by the HFRI EH: Energy/Basic Materials Index, the HFRI EH: Healthcare Index jumped 5.5 per cent, and the HFRI EH: Technology Index advanced 4.0 per cent. Through May, the Healthcare Index has returned 9.4 per cent, the Energy Index 8.7 per cent, and the Technology Index 8.6 per cent; each of these topping the7.8 per cent gain of the Nasdaq Composite Index for 2018.
Fixed income-based HFRI Relative Value (Total) Index added +0.9 per cent in May, led by contributions from Energy Yield Alternatives and Volatility trading strategies. The HFRI RV: Yield Alternative Index, which includes both Energy Infrastructure and MLP exposures, surged 3.6 per cent for the month, while the HFRI RV: Volatility Index added 3.2 per cent. The May return lifted the Yield Alternatives Index to a YTD gain of 3.2 per cent.
Macro hedge funds experienced mixed performance in May as US-centric gains were offset by growing political instability in Europe and the impact of sharp increases in Italian bond yields. The HFRI Macro (Total) Index declined -0.6 per cent for the month despite a strong gain in fundamental, discretionary Macro strategies. The HFRI Macro: Discretionary Thematic Index gained 2.0 per cent, the strongest monthly gain since January 2013, with contributions from positive exposure to the US and defensive positioning in Italy and broader EU member bonds. The HFRI Macro: Systematic Diversified/CTA Index declined 1.4 per cent for the month.
The HFR Risk Parity Vol 10 Institutional Index gained 1.3 per cent in May, bringing the YTD return to +/-xx per cent. The HFR Risk Parity Vol 12 Institutional and Vol 15 Institutional Indices also advanced 1.39 and 2.35 per cent, respectively, in May.
Funds with exposure to volatile blockchain and cryptocurrencies reversed strong April gains to decline in May, as the HFR Blockchain Index fell -16.9 per cent in the month and has declined 31.9 per cent YTD.
“Hedge fund performance in May was driven by a complex and powerful mix of trends with both positive and negative implications, including accelerating US economy, EU political instability, strong corporate earnings, geopolitical implications of possible North Korea summit and ongoing trade/tariff negotiations and proposals,” says Kenneth J Heinz (pictured). “Regardless of near-term clarity or uncertainty on any of these, it is likely that these will continue to exist as drivers of financial market and hedge fund performance, and that the ongoing evolution of such themes represent opportunities for dislocations and performance generation for funds specialising in these exposures.”

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