Hedge Funds Down 2.81% in February

Hedge funds posted a 2.81% loss for February 2020, with the Barclay Hedge Fund Index reflecting significant industry-wide declines as the coronavirus pandemic began reshaping global financial markets. Despite broad market stress, hedge funds demonstrated meaningful outperformance relative to traditional equity benchmarks: the S&P Total Return Index fell 8.2% during the same month, nearly triple the hedge fund industry decline. Year-to-date performance through February reinforced this relative stability, with the hedge fund industry down 3.00% versus an 8.3% decline for the S&P Total Return Index.

According to Sol Waksman, president of BarclayHedge, the February performance reflected a sharp pivot in market dynamics. "In ordinary times, news like favorable U.S. manufacturing data and a strong U.S. January jobs report might have provided a boost. But, with the coronavirus, these aren't normal times," Waksman noted. As the month progressed and the virus spread globally, markets entered severe turmoil, with equities posting their worst week since the 2008 financial crisis as investors scrambled to assess the potential economic fallout.

Sector-level performance was decidedly mixed, with only four of BarclayHedge's 31 indices generating positive returns. The Volatility Trading Index led gainers at +1.38%, followed by Convertible Arbitrage (+1.01%), Option Strategies (+0.94%), and Fixed Income Arbitrage (+0.47%). These strategies benefited from extreme market dislocations and hedging demand. In sharp contrast, emerging markets and international equity strategies bore the brunt of sell-offs. The Emerging Markets Latin American Equities Index fell 8.20%, the Pacific Rim Equities Index declined 6.48%, and the Emerging Markets Global Equities Index dropped 5.77%, reflecting capital flight from risk assets and currency pressures during the initial phases of the pandemic-driven market shock.