HFRX Indices January 2014 performance notes

Global financial markets declined as volatility spiked in January, as Emerging Market currency weakness and further reduction of US Federal Reserve stimulus measures contributed to reduction in investor risk tolerance. Global equity markets posted broad based declines, with US declined led by large cap, Consumer Durables, Retail and Telecom sectors. Asian & European equities also declined, with Asian losses led by Japan & Hong Kong, European losses led by Russia and the Netherlands; Emerging Markets posted steep losses led by Brazil, Turkey and Mexico. Government bond yields declined as investors on the investor flight to quality, with US yields falling across all maturities as the curve flattened, European yields also fell across UK Gilts, German Bunds, France and Spain. Emerging markets currencies posted steep declines against the US dollar, led by the Argentine Peso and South African Rand; the US dollar gained against most currencies including the Euro, British Pound Sterling and Canadian Dollar. Commodity gains were led by Gold, Natural Gas & Cattle, which were offset by declines in Oil, Copper & Wheat. Hedge funds posted mixed performance with the HFRX Global Hedge Fund Index posting a decline of -0.24% for the month, while the HFRX Absolute Return Index gained +0.68% and the HFRX Equal Weighted Strategies Index gained +0.14%.

HFRX Event Driven Index posted a gain of +0.39% in the month of January, extended 2013 gains with contributions from Distressed/Restructuring and Equity Special Situations strategies. HFRX Distressed Index gained +1.08% for the period from performance in various restructurings across Communications, Basic Materials and Consumer sectors. HFRX Special Situations Index gained +0.17% for the month from exposure to Financials, Energy, Consumer Cyclicals and Utilities, with core positioning in Cole REIT, McKesson, Hertz, Ferro, American Airlines, North American Energy, American Realty, Time Warner and Life Technologies. HFRX Merger Arbitrage Index posted a narrow gain of +0.09%, with contributions from transactions in Suntory/Beam, CapitalSource/PacWest Bancorp, Avago Technologies/LSI, Kroger/Harris Teeter, FNB/BCSB Bancorp and Thermo Fisher/Life Technologies.

HFRX Macro Index posted a narrow decline of -0.07% in the month of January, with wide dispersion in performance across trend-following CTA, Currency and Emerging Markets strategies. HFRX Macro: Systematic Diversified Index gained +0.20% with gains across commodity, fixed income & currency exposures. In a volatile month for Emerging Market currencies and equities, HFRX Emerging Markets Index posted a decline of -0.87%, mitigating sharp EM equity losses with effective hedging and tactical positions, with declines concentrated in Latin America and the Middle East.

HFRX Relative Value Arbitrage Index posted a decline of -0.20% in the month of January, with gains across Convertible Arbitrage offset by declines in Multi-Strategy managers as credit widening offset falling yields as volatility increased. HFRX Fixed Income Credit Index and the HFRX Convertible Arbitrage Index gained +0.60% and +0.64%, respectively, with contributions from falling yields, volatility positions and effective credit hedging. HFRX RV Multi-Strategy Index declined -0.38% from mixed performance in global credit exposure, while yield-alternative strategies posted gains, with the HFRX MLP Index leading all sub-strategies with a gain of +1.58%.

HFRX Equity Hedge Index posted a decline of -1.01% in the month of January, with gains in Market Neutral and Fundamental Growth managers offset by declines in Fundamental Value managers. HFRX Market Neutral Index gained +0.72%, with gains across mean reverting and fundamental, factor-based models. HFRX Fundamental Growth Index rose +0.36% with contributions from Global Healthcare only partially offset by declines in Japan and UK mid- and small-cap equity. HFRX Fundamental Value Index declined -1.73% from exposure to Consumer and Global large-cap equity.

Comments reference performance figures for January 31, 2014

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