The HFRI Fund Weighted Composite Index®, produced by Hedge Fund Research, rose by an estimated 2.2 per cent from a month before, the strongest monthly gain since January 2023 and the fifth strongest return in the trailing three-year period. The HFRI 500 measure also rose 1.8 per cent, while the HFR Cryptocurrency Index surged 8.2 per cent – reflecting strong rises in entities such as bitcoin, the Chicago-headquartered organization said on Friday.

“The outlook for hedge fund performance into 2024 continues to improve with higher nominal levels of bond yields, acceleration of powerful AI-driven technology trends, expanding cryptocurrency applications, improving economic outlook and the potential for interest rate declines,” Kenneth Heinz, HFR president, said.

Hedge funds focused on emerging markets also produced strong November performance, with the HFRI Emerging Markets Index gaining 3.6 per cent, and rose 5.6 per cent on a year ago, driven by the HFRI EM: Latin America Index, which rose 9.85 per cent for the month, surging 20.35 per cent on a year ago.

Nearly 70 per cent of hedge funds produced positive performance in November, HFR said. 

While typically charging higher annual fees and performance fees than more conventional funds, hedge funds offer clients the ability to mitigate the impact of market movements, capture otherwise hard-to-gain returns, and exploit mis-pricings in specific markets. Fortunes of hedge funds have waxed and waned. Recent changes, such as rising interest rates after the pandemic, and energy price volatility after Russia’s invasion of Ukraine, have benefited certain strategies, while blunting returns from others.

Equity hedge funds, which invest long and short across specialized sub-strategies, led November strategy performance, with quantitative directional, technology, fundamental value, and healthcare leading equity hedge sub-strategy gains. The HFRI 500 Equity Hedge Index rose 4.3 per cent for the month. 

Event-driven strategies, which often focus on out-of-favor, deep value equity exposures and speculation on M&A situations, also surged in November as equities, credit and M&A all gained for the month, with the HFRI Event-Driven Index jumping 3.6 per cent, the strongest monthly gain since February 2021. Versus a year ago, it is 6.4 per cent.

Event-driven sub-strategy performance was driven by the HFRI ED: Activist Index, which surged 7.7 per cent in November and up 9.32 per cent on a year ago.

Fixed income-based, interest rate-sensitive strategies also gained in November, as interest rates declined, and investors positioned as if the interest rate increasing cycle has concluded.

After gaining through the volatile September/October equity market declines, macro strategies declined in November as interest rates and commodities fell while risk tolerance increased, with the HFRI Macro Index falling -1.6 per cent for the month and are down 1.8 per cent on the year.