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A blockbuster year for stocks and other assets perceived as risky helped hedge funds post their strongest performance since 2009 last year, though they lagged well behind the broader stock market, according to a closely watched performance gauge.
The HFRI Fund Weighted Composite Index gained 1.8% in December, leaving it with a 2019 rise of 10.4% — the strongest since a 20% rise in 2009, according to HFR, a Chicago-based hedge-fund data and analysis firm. That compares with a 31.5% return for the S&P 500 SPX, +0.49% in 2019 and a 10.1% rise for the Barclays Capital Government/Credit Bond Index.
See: Hedge funds lose money in 2018 but outperform S&P 500 by a whisker
“Global financial markets experienced a correlated melt up in 2019, with strong gains across equities (led by U.S. technology), fixed income, commodities, and currencies,” aid Kenneth J. Heinz, HFR president, in a news release.
“While the core U.S. economy and employment remains strong, the 2020 outlook reflects positive but tempered expectations as a result of rising geopolitical risks and increasing conflict in the Middle East, continuation of trade tariff negotiations, and the uncertainty of the U.S. election,” Heinz said. “Funds positioned for this dynamic, global, opportunity-rich environment are likely to lead industry performance and growth in 2020.”
Broken down by strategy, risk-parity funds were the top performers, the data showed. The HFR Risk Parity Vol 15 Index rose 30.6% in 2019. Risk-parity strategies attempt to spread risk across different assets equally in an effort to produce smoother returns.
Hedge-fund managers have complained that their performance shouldn’t be compared with the broader stock market, given that they are ostensibly designed to lessen, or hedge, risk. But years of underperformance have taken a toll on the industry, which has seen pressure on fees and exits by a number of high-profile managers.
