February was a month of mixed performance for hedge funds, with volatility proving to be both a challenge and an opportunity. According to analysis from indexation and research firm HFR, hedge funds experienced varied outcomes across different strategies, as Macro funds gave up early-year gains, while Relative Value and Event Driven funds performed positively.
The HFRI Fund Weighted Composite Index (FWC) recorded a -0.47% return for the month, but it remained in positive territory for the year, with a +0.84% return after the first two months of 2025. However, the HFRI Macro (Total) Index faced a significant decline of -1.47% in February, pushing the strategy into the red for 2025 at -0.45%. The mixed performance within the Macro category showed that while active and discretionary traders performed well, systematic and trend-following strategies suffered, erasing some of the earlier gains. Additionally, the HFRI Currency Index dropped by 1.92%, taking it to -0.6% year-to-date.
In contrast, strategies that performed better in February included Relative Value and Event Driven funds. The HFRI Relative Value (Total) Index rose by an estimated +0.8%, marking its 16th consecutive monthly gain and a 29th gain in the last 32 months. This growth was driven largely by the success of credit multi-strategies and convertible arbitrage exposures in a volatile environment. Meanwhile, the Cryptocurrency Index underperformed significantly, falling 16.8% amid declines in most major cryptocurrencies.
The HFRI Multi-Manager/Pod Shop Index saw a solid +0.92% gain for the month, while performance dispersion widened. The top decile of HFRI FWC constituents advanced by an average of +6.5%, while the bottom decile fell by -8.3%, marking a top/bottom dispersion of 14.8% for the month. By comparison, this figure was 12.1% in January. Over the trailing 12 months, the top decile gained +31.2%, while the bottom decile lost -15.7%. In total, about half of hedge funds produced positive performance in February, according to HFR.
Opportunistic and Tactical Strategies Stand Out
Kenneth Heinz, president of HFR, noted that hedge funds successfully navigated volatility across equity markets and reversals driven by trade and tariff uncertainty. Relative Value Arbitrage and Event Driven strategies gained, with Relative Value Arbitrage achieving a record 16th consecutive monthly gain. This underscores the strength of credit multi-strategies and traditional convertible arbitrage, which performed well amid extreme volatility.
With rapid fluctuations in risk sentiment and micro-cycles affecting equity, fixed income, commodity, currency, and cryptocurrency markets, hedge funds remained tactically flexible, with gains across specialized sub-strategies, including Active Trading and Volatility strategies.
Outlook: Defensive Capital Preservation and Opportunistic Exposure
Looking ahead, Heinz emphasized that institutional investors will likely continue to seek funds that balance opportunistic exposure to volatile trends with defensive capital preservation. Funds that have successfully executed their strategies amid heightened volatility are expected to attract interest as expectations for policy transitions and continued market shifts persist.
Overall, the hedge fund industry faced a turbulent month in February, but for many, volatility proved to be an opportunity for tactical maneuvers and strategic positioning.
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