Hedge funds beat some barometers of equity market performance, for example, in December and for the whole of 2020 (although these aren't like-for-like entities). The results again keep debate alive on whether funds are, in general, worth their higher fees.

Hedge funds gained ground in December, extending November gains and concluding the volatile year higher than the sector started, industry figures from Hedge Fund Research show.

The firm’s investable HFRI 500 Fund Weighted Composite Index rose by 3.5 per cent for the month, bringing full-year 2020 performance to 9.8 per cent. That is higher than the US Dow Jones Industrial Average and the UK’s FTSE 100 indices, HFR said. (It should be noted that measures of hedge fund performance aren’t directly comparable to indices of equities, given differences in liquidity, for example.)

The HFRI Fund Weighted Composite Index, another of HFR’s yardsticks, rose by 4.5 per cent in December, extending its full-year return to 11.6 per cent.

“With the strong performance, hedge funds are continuing to evolve with the shifting geopolitical risk and macroeconomic opportunity set, with certain trends accelerating into the new year, while others reverse or evolve with greater clarity on vaccine and political outcomes,” Kenneth J Heinz, president of HFR, said. 

The equity hedge strategy area led performance in December as the HFRI Equity Hedge (Total) Index rose by 5.5 per cent for the month, bringing the two-month return to 14.2 per cent and the full-year 2020 advance to 17.5 per cent. The investable HFRI 500 Equity Hedge Index rose by 4.3 per cent in December, extending its two-month gain to 11.9 per cent and the 2020 return to 15.4 per cent.

HFR noted how hedge funds playing in the blockchain and cryptocurrency areas delivered strong gains. In recent weeks, bitcoin has surged in price, pushing over $41,000 at one point this week. 

The HFR Blockchain Composite Index returned 18.6 per cent in December, taking 2020 performance to 190.1 per cent, while the HFR Cryptocurrency Index increased by 18.3 per cent for the month.

Event-driven strategies – such as those making money out of mergers and acquisitions – posted gains in December, led by special situations, activist, and multi-strategy exposures. The investable HFRI 500 Event-Driven Index returned 4.6 per cent for the month, while the HFRI Event-Driven (Total) Index jumped by 4.5 per cent in December bringing its 2020 return to 9.3 per cent, representing a strong recovery from a steep drawdown of nearly -15.0 per cent in the first quarter of 2020.

Uncorrelated macro strategies gained, with the HFRI Macro (Total) Index advancing by 3.9 per cent while the HFRI 500 Macro Index gained 3.6 per cent. 

There are some differences in how data providers’ figures show how well hedge funds stack up against other areas. The Global CIO Office, using data from Bloomberg, said global equities in 2020 were up by 15.9 per cent, global bonds gained 9.2 per cent, gold rose by 25.1 per cent and hedge funds gained 6.6 per cent. (This news service is talking to HFR about its approach to comparing hedge fund returns against benchmarks and its methodology, and will update in due course.)