HFRX Indices December & Year End 2013 performance notes

Global financial markets posted mixed gains in December, recovering intra-month, mid-December declines to conclude strong performance for both 4Q and FY 2013 as the US Federal Reserve began the process to reducing quantitative easing measures. Global equity markets were mixed, with US & European gains partially offset by mixed performance in Asia and Emerging Markets. Equity gains were led by the US as the outlook for the US economic recovery continued to improve with large cap Industrials leading December performance; Semiconductors, Telecommunications and Energy sectors led performance in December. European equities also posted gains, led by Germany, Russia, the U.K., Sweden and the Netherlands, while Asian equities were mixed with gains in Japan, Taiwan and India offset by declines in China, Hong Kong and the Philippines. Despite the broad based gains, certain developed and emerging markets posted declines for the month, led by Turkey, Argentina, Italy & Brazil. Fixed income yields rose as the US Federal Reserve reduced monthly fixed income purchases, with the U.S. 10 Year bond yield closing the year above 3%, while the US curve flattened as yields rose more sharply in shorter dated issues. European yields also generally rose led by increases in UK Gilts, German Bunds, France, Russia and the Netherlands, while high yield credit tightened into year end. The US dollar posted mixed performance, with gains against the Japanese Yen, Argentine Peso and Indonesian rupiah offset by declines against the British Pound, Euro and Swedish Krona. Energy commodities posted gains led by Crude Oil & Natural Gas, while Metals were mixed as Gold & Silver declined; agricultural commodities declines were led by Wheat & Sugar, while Cotton gained. Hedge funds gained in 2013 with equity-related strategies posting their best annual performance in four years, with the HFRX Global Hedge Fund Index gaining +0.56% for December and +6.72% for 2013, the best annual performance since 2009. HFRX Market Directional Index gained +0.89% for December and +9.50% for 2013, also the best Index annual performance since 2009.

HFRX Equity Hedge Index posted a gain of +1.25% for December, ending 2013 with a gain of +11.14%, the best Index performance in four years. HFRX Fundamental Value Index gained +1.39% for the month, gaining +16.1% for the year, the best annual performance since 2005. HFRX Fundamental Growth Index gained +1.21% for the month, with contributions from Emerging Asia and Global Healthcare, while HFRX Market Neutral Index gained +0.17% for the month, ending the year with a 3rd consecutive monthly gain.

HFRX Event Driven Index posted a gain of +0.28% for December, ending 2013 with a gain of +13.9%, the best performing strategy in 2013 and the best annual performance for ED since 2009. HFRX Special Situation Index gained +0.38% for December, contributing to a gain of +18.2% for 2013, also the best annual gain since 2009. December performance was driven by exposure to Cyclicals, Industrial and Communications sectors, with core positioning in Cole REIT, Hertz, American Realty, Briggs & Stratton, Penn West, Time Warner and GM. HFRX Merger Arbitrage Index posted a gain of +0.45% for the month, with contributions from transactions in Kroger/Harris Teeter, NYSE/Intercontinental Exchange, CapitalSource/PacWest, Salix/Santarus, FNB/BCSB Bancorp, Koch/Molex and Thermo Fisher/Life Technologies. HFRX Distressed Index posted a modest decline of -0.02% for the month, with mixed contributions from various restructurings across Consumer, Technology, Non-Cyclical and Basic Materials sectors.

HFRX Macro Index posted a modest decline of -0.05% for December, with gains in trend-following CTA strategies offset by declines in Currency and Fixed Income strategies. HFRX Macro: Systematic Diversified Index gained +0.55% for the month, ending the year with a 3rd consecutive monthly gain, while the HFRX Emerging Markets Index gained +0.10% for the month.

HFRX Relative Value Arbitrage Index posted a gain of +0.60% for December, with gains in Convertible Arbitrage and Multi-Strategy managers as effective rate hedging and credit tightening offset the impact of rising yields. The HFRX Convertible Arbitrage Index gained +1.11% for the month and +10.42% for the year, the best annual performance since 2009. HFRX RV: Multi-Strategy Index rose +0.25% while HFRX Fixed Income Credit Index posted a gain of +0.45% , with both Indices ending the year with a 4th consecutive month of gains.

Comments reference performance figures as posted for December 31, 2013

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