Stockholm (HedgeNordic) – HFRI reports that hedge funds extended recent performance gains to begin 2024, with strong contributions from fixed income-based strategies as geopolitical risks continued to escalate. Gains were recorded across a wide range of strategies and sub-strategies as investors and managers positioned for interest rates to remain elevated through early 2024 amid resilient US economic data. The HFRI Fund Weighted Composite Index^® (FWC) advanced an estimated +0.28 percent for the month, while the HFRI 500 FWC Index added +0.24 percent. Meanwhile, the Nordic Hedge Index Composite (NHX) advanced by an estimated 1.18 percent.

Fixed income-based, interest rate-sensitive strategies led HFRI performance in January, as interest rates increased, and investors were positioned for elevated interest rates through early 2024 as the US economic outlook continued to improve.

Equity Hedge (EH) funds, which invest long and short across specialized sub-strategies, also gained in January, led by Technology, Healthcare, and Market Neutral exposures, as the HFRI Equity Hedge (Total) Index advanced +0.21 percent (estimated) for the month. In comparison, the equity sub-index to the NHX, the largest with 50 constituents, gained an estimated 0.76 percent in January 2024.

Uncorrelated Macro strategies also posted gains in January as interest rates rose on strong US economic data, with the HFRI Macro (Total) Index advancing +0.43 percent (estimated) for the month. Macro sub-strategy gains were led by the HFRI Macro: Commodity Index, which advanced +1.36 percent in January, while the HFRI Macro: Multi-Strategy Index also added +1.25 percent for the month.

“Hedge funds extended recent gains to begin 2024 as geopolitical risk escalated, complementing ongoing interest rate and inflation risk, with geopolitical risk spanning a wide range of issues including uncertainty regarding ongoing conflicts in Ukraine and Israel, as well as recent conflicts in Yeman and the Red Sea, uncertainty with regard to Taiwan and the upcoming US election. Fixed income-based Relative Value Arbitrage led gains through corporate exposures, with additional positive contributions from Technology, Credit Arbitrage, and Market Neutral sub-strategies”, stated Kenneth J. Heinz, President of HFR. “Given the evolving and fluid geopolitical and macroeconomic environment, managers are actively and dynamically managing portfolio exposures and risk with a more intense focus on positive optionality, convexity and the increased potential for destabilizing dislocations. With an increased sensitivity toward these risks, it is likely that institutions will be increasing commitments to funds opportunistically positioned to preserve capital while also monetizing exposures created by instability and volatility.”

NOTE: January 2024 index performance figures are estimated as of February 7, 2024

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