HFRX Indices Mid-February 2014 performance notes

Global financial markets posted gains through mid-February, as corporate earnings results continued to be favorable and the transition in US Federal Reserve leadership proceeded without significant modifications to existing policies. Global equity markets posted gains through mid-February, recovering early month losses and paring losses for FY 2014, with US leadership from Technology, Commodity-sensitive, Cyclicals and Healthcare sectors. European and Asian equities also posted gains through mid-month, with leadership from France, Germany, Italy and Switzerland, while Asian equities were led by China, Australia and Thailand. US yields rose as the curve steepened, with increases concentrated in longer dated maturities; European yields were little changed through mid-month as high yield credit tightened and overall asset volatility fell, despite an early month increase. The US dollar fell against the British Pound Sterling, Swiss Franc and Euro, while also declining against Emerging and Commodity currencies including Canadian Dollar, Australian Dollar, South African Rand and New Zealand Dollar. Commodities posted gains across Metals, Energy and Agriculturals, led by Oil, Natural Gas, Gold, Silver, Coffee and Soybeans. Hedge funds posted gains with the HFRX Global Hedge Fund Index gaining +0.62% through mid-month, while the HFRX Market Directional Index gained +1.45%.

HFRX Equity Hedge Index posted a gain of +1.56% through mid-February, the best gains since January '13, with contributions from Fundamental and Market Neutral managers. HFRX Fundamental Growth Index rose +2.04%, with gains concentrated in Global Healthcare and European mid- and small-cap equity. HFRX Fundamental Value Index gained +1.44% with performance in Financials, Consumer and European large-cap equity. The HFRX Market Neutral Index gained +0.61%, with gains across mean reverting, factor-based models as volatility declined and dispersion narrowed.

HFRX Event Driven Index posted a gain of +1.21% through mid-February, with contributions from Equity Special Situations and Distressed/Restructuring strategies. HFRX Special Situations Index gained +1.54% through mid-month with contributions from exposure to Energy and Industrials and Financial sectors, with core positioning in Cole REIT, Time Warner, Sensient Technologies, Apple, Herbalife and American Airlines. HFRX Distressed Index posted a gain of +0.41% through mid-month, with contributions from restructurings across Communications, Financials and Technology sectors in the US and Europe. HFRX Merger Arbitrage Index was narrowly changed through mid-month, with mixed contributions from transactions in Suntory/Beam, CapitalSource/PacWest Bancorp, Avago Technologies/LSI and Tower Financial/Old National Bancorp.

HFRX Relative Value Arbitrage Index posted a gain of +0.57% through mid-February with contributions across Convertible Arbitrage and Multi-Strategy managers as credit tightening offset rising yields. HFRX Convertible Arbitrage Index gained +0.64%, as credit gains offset volatility declines, while HFRX RV: Multi-Strategy Index and HFRX Fixed Income Credit Index posted gains of +0.55% and +0.54%, respectively. HFRX MLP Index gained +1.84% on strong demand for energy infrastructure partnerships, leading all Indices with a +3.45% YTD gain.

HFRX Macro Index posted a decline of -1.31% through mid-February, with weakness in trend-following CTA and Discretionary Macro partially offset by gains in Emerging Markets exposure. HFRX Macro: Systematic Diversified Index declined -2.02% with weakness across currency, commodity equity and fixed income exposures, while the HFRX Emerging Markets Index posted a gain of +0.09% with contributions from Asian convertible strategies, paring prior month losses.

Comments reference performance as published through February 14, 2014.

Learn more: www.hfrx.com