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Event-Driven Strategies Lead Hedge Funds To Kick Off 2021 In The Green

Event-driven strategies posted solid gains of +2.81% on average in January as hedge funds generally advanced at the start of 2021. The HFRI Fund Weighted Composite Index gained +0.9% last month, while the investable HFRI 500 Fund Weighted Composite Index advanced +0.35%.

Reflecting the powerful trading trends, the HFRI FWC experienced a wide dispersion in constituent performance, as the top decile of the HFRI gained +11.6% while the bottom decile declined -7.8% for the month. As reported previously by HFR, total hedge fund capital jumped to $3.6trn to begin 2021, a Q4 20 increase of $290bn, representing the largest asset growth in industry history. Estimated 4Q20 net asset inflows totaleld $3.0bn, bringing total inflows for the second half of 2020 to $16.0bn.

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

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 over +48.0% in January.

“Hedge funds effectively navigated the idiosyncratic stock trading volatility which focused on deep value equities with high short interest, with this trend driving gains across Event Driven strategies which categorically focus on inexpensive, out of favour equities that are experiencing fundamental, structural transition in the underlying businesses. While certain sub-strategies declined in January, as is evidenced by the wide dispersion in performance, as a direct result of the size, breadth and diverse nature of hedge fund strategies, overall industry performance was positive for the month,” stated Kenneth J. Heinz, President of HFR. “While significant financial market attention has been focused on a handful of funds and small number of equities impacted by these recent trading trends, the overall hedge fund industry is comprised of over 9,100 funds managing nearly $3.6trn across a highly diverse range of strategies, which include significant capital exposure to out of favour, deep value equites. With an emphasis also on opportunistic positioning and sustained capital appreciation achieved through specialized long-short portfolio management, leading institutions are likely to continue expanding allocations to hedge funds as a tool for achieving their long-term portfolio objectives.”

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