What is hfri index

HFR provides investment professionals with timely, comprehensive, and customized views of their investments. HFR is the established global leader in the indexation, analysis and research of the hedge fund industry.

With over indices ranging from broad composites down to specific, niche areas of sub-strategy and regional investment focus, the HFR Indices are considered the industry standard benchmarks of hedge fund performance. Details here. CHICAGO, November 5, — Hedge funds advanced in October, as short-term interest rates rose while the yield curve flattened, and global equity markets reversed prior month losses. Equity Hedge funds, which invest long and short across specialized sub-strategies, led all main strategy performance in October, as global equities posted strong gains, reversing prior month losses.

Uncorrelated Macro strategies also advanced in October, as short terms rates increased while longer terms rates fell, and energy prices extended recent gains. Fixed income-based, interest rate-sensitive strategies also gained for the month, as the yield curve flattened and as investors positioned for the near-term tapering on bond purchases by US Federal Reserve.

Risk Premia strategies again posted mixed performance in October as gains in Multi-Asset exposures were offset by declines in Rates. Industry growth has been driven by strong performance which extends widely across strategies — including high and low beta, equity, fixed income, commodity and currency strategies, and emerging and established managers.

Heinz, President of HFR. Welcome, Guest! Create Account Login 0. Portfolio positions typically are predicated on the evolution of investment themes the Manager expect to materialize over a relevant timeframe, which in many cases contain contrarian or volatility focused components. Curency Index include both discretionary and systematic currency strategies. Systematic Currency strategies have investment processes typically as function of mathematical, algorithmic and technical models, with little or no influence of individuals over the portfolio positioning.

Strategies which employ an investment process designed to identify opportunities in markets exhibiting trending or momentum characteristics across currency assets classes, frequently with related ancillary exposure in sovereign fixed income.

Discretionary Currency strategies are reliant on the fundamental evaluation of market data, relationships and influences as they pertain primarily to currency markets including positions in global foreign exchange markets, both listed and unlisted, and as interpreted by an individual or group of individuals who make decisions on portfolio positions; strategies employ an investment process most heavily influenced by top down analysis of macroeconomic variables.

Discretionary Thematic strategies are primarily reliant on the evaluation of market data, relationships and influences, as interpreted by an individual or group of individuals who make decisions on portfolio positions; strategies employ an investment process most heavily influenced by top down analysis of macroeconomic variables.

Portfolio positions typically are predicated on the evolution of investment themes the Manager expect to materialize over a relevant time frame, which in many cases contain contrarian or volatility focused components. Macro: Multi-Strategy Strategies which employ components of both Discretionary and Systematic Macro strategies, but neither exclusively both.

Strategies frequently contain proprietary trading influences, and in some cases contain distinct, identifiable sub-strategies, such as equity hedge or equity market neutral, or in some cases a number of sub-strategies are blended together without the capacity for portfolio level disaggregation.

Strategies employ an investment process is predicated on a systematic, quantitative evaluation of macroeconomic variables in which the portfolio positioning is predicated on convergence of differentials between markets, not necessarily highly correlated with each other, but currently diverging from their historical levels of correlation.

Strategies focus on fundamental relationships across geographic areas of focus both inter and intra-asset classes, and typical holding periods are longer than trend following or discretionary strategies.

Systematic: Diversified strategies have investment processes typically as function of mathematical, algorithmic and technical models, with little or no influence of individuals over the portfolio positioning. Strategies which employ an investment process designed to identify opportunities in markets exhibiting trending or momentum characteristics across individual instruments or asset classes. Although some strategies seek to employ counter trend models, strategies benefit most from an environment characterized by persistent, discernable trending behavior.

Investment Managers who maintain positions in which the investment thesis is predicated on realization of a valuation discrepancy in the relationship between multiple securities. Managers employ a variety of fundamental and quantitative techniques to establish investment theses, and security types range broadly across equity, fixed income, derivative or other security types. Fixed income strategies are typically quantitatively driven to measure the existing relationship between instruments and, in some cases, identify attractive positions in which the risk adjusted spread between these instruments represents an attractive opportunity for the investment manager.

RV position may be involved in corporate transactions also, but as opposed to ED exposures, the investment thesis is predicated on realization of a pricing discrepancy between related securities, as opposed to the outcome of the corporate transaction. Fixed Income: Asset Backed includes strategies in which the investment thesis is predicated on realization of a spread between related instruments in which one or multiple components of the spread is a fixed income instrument backed physical collateral or other financial obligations loans, credit cards other than those of a specific corporation.

Strategies employ an investment process designed to isolate attractive opportunities between a variety of fixed income instruments specifically securitized by collateral commitments which frequently include loans, pools and portfolios of loans, receivables, real estate, machinery or other tangible financial commitments. Investment thesis may be predicated on an attractive spread given the nature and quality of the collateral, the liquidity characteristics of the underlying instruments and on issuance and trends in collateralized fixed income instruments, broadly speaking.

In many cases, investment managers hedge, limit or offset interest rate exposure in the interest of isolating the risk of the position to strictly the yield disparity of the instrument relative to the lower risk instruments. Fixed Income: Convertible Arbitrage includes strategies in which the investment thesis is predicated on realization of a spread between related instruments in which one or multiple components of the spread is a convertible fixed income instrument.

Strategies employ an investment process designed to isolate attractive opportunities between the price of a convertible security and the price of a nonconvertible security, typically of the same issuer. Convertible arbitrage positions maintain characteristic sensitivities to credit quality the issuer, implied and realized volatility of the underlying instruments, levels of interest rates and the valuation of the issuer's equity, among other more general market and idiosyncratic sensitivities.

Fixed Income: Corporate includes strategies in which the investment thesis is predicated on realization of a spread between related instruments in which one or multiple components of the spread is a corporate fixed income instrument. Strategies employ an investment process designed to isolate attractive opportunities between a variety of fixed income instruments, typically realizing an attractive spread between multiple corporate bonds or between a corporate and risk free government bond.

Fixed Income: Corporate strategies differ from Event Driven: Credit Arbitrage in that the former more typically involve more general market hedges which may vary in the degree to which they limit fixed income market exposure, while the later typically involve arbitrage positions with little or no net credit market exposure, but are predicated on specific, anticipated idiosyncratic developments.

Fixed Income - Sovereign includes strategies in which the investment thesis is predicated on realization of a spread between related instruments in which one or multiple components of the spread is a sovereign fixed income instrument. Strategies employ an investment process designed to isolate attractive opportunities between a variety of fixed income instruments, typically realizing an attractive spread between multiple sovereign bonds or between a corporate and risk free government bond.

Fixed Income Sovereign typically employ multiple investment processes including both quantitative and fundamental discretionary approaches and relative to other Relative Value Arbitrage sub-strategies, these have the most significant top-down macro influences, relative to the more idiosyncratic fundamental approaches employed.

Multi-Strategies employ an investment thesis is predicated on realization of a spread between related yield instruments in which one or multiple components of the spread contains a fixed income, derivative, equity, real estate, MLP or combination of these or other instruments.

Strategies are typically quantitatively driven to measure the existing relationship between instruments and, in some cases, identify attractive positions in which the risk adjusted spread between these instruments represents an attractive opportunity for the investment manager. In many cases these strategies may exist as distinct strategies across which a vehicle which allocates directly, or may exist as related strategies over which a single individual or decision making process manages.

Volatility strategies trade volatility as an asset class, employing arbitrage, directional, market neutral or a mix of types of strategies, and include exposures which can be long, short, neutral or variable to the direction of implied volatility, and can include both listed and unlisted instruments.

Directional volatility strategies maintain exposure to the direction of implied volatility of a particular asset or, more generally, to the trend of implied volatility in broader asset classes. Arbitrage strategies employ an investment process designed to isolate opportunities between the price of multiple options or instruments containing implicit optionality.

Volatility arbitrage positions typically maintain characteristic sensitivities to levels of implied and realized volatility, levels of interest rates and the valuation of the issuer's equity, among other more general market and idiosyncratic sensitivities. Yield Alternative strategies employ an investment thesis is predicated on realization of a spread between related instruments in which one or multiple components of the spread contains a derivative, equity, real estate, MLP or combination of these or other instruments.

Strategies employ an investment process designed to isolate opportunities in yield oriented securities, which can include equity, preferred, listed partnerships MLPs , REITs and some other corporate obligations. In contrast to fixed income arbitrage, yield alternative contain primarily non-fixed income securities, and in contrast to equity hedge strategies, the investment thesis is more predicated on the yield realized from the securities than on price appreciation of the underlying securities.

Welcome, Guest! Create Account Login 0. HFR Database Access our detailed database of thousands of hedge funds, fund of funds and managed futures investment products. Learn more HFR Investor Database Access our detailed database of leading institutional investors in the hedge fund industry. In this environment, we believe that skill-based absolute return strategies are well-positioned to continue prospering. Not only is the outlook for hedge funds favorable, but recent industry performance has been historically strong.

The global pandemic is creating numerous dislocations and opportunities for fund managers. Hedge funds, as represented by hedge fund index data, have generated more alpha in the last year than in any month period in the last decade.

If you are holding a diversified portfolio of hedge funds, it has likely performed well recently, but not to the level we have seen for the indexes. Relying solely on industry benchmarks to contextualize individual portfolio performance and extrapolate future trends can be frustrating and misleading.

HFR is one of the leaders in hedge fund index reporting and analysis, and in our experience, it is the one most often used by hedge fund investors to benchmark their portfolios. However, the biases in the indexes we are describing apply to many other industry index providers as well. The key motivation for a hedge fund to report its performance to an index is to market itself.

Subscribers to the HFR database are looking into the database to find candidates for investment. Therefore, there is little reason for a hedge fund to continue to report poor performance to the database provider, and there is certainly no incentive to report catastrophic results. These biases can be strongest around market inflection points. A market dislocation can damage many funds, while the subsequent recovery can boost many newly launched funds into a rally.

Additionally, the underlying funds held by the fund of funds are compelled to report to the fund of funds because it is an investor. Nonetheless, even with fund of funds, we see that periods with the greatest number of drops occur during large market sell-offs. Display 1 shows fund count by quarter, as reported by HFR. Underlying constituents are obligated to report their performance.

Given this, they can help approximate the impact of bias in non-investable indexes. Display 2. The indexes most often used to evaluate funds of hedge funds are equal-weighted. While HFR does not provide an asset-weighted FOF index, the impact of fund weighting can be seen in its hedge fund indexes.

This variance of 9. Display 3. Hedge fund indexes can be highly correlated to equity markets and thus exposed to higher-than-expected levels of market risk. The investable hedge fund universe, however, is very heterogenous, with many defensive and market-neutral strategies.

Understanding this may be particularly relevant for investors seeking risk mitigation or meaningful returns that are uncorrelated to the broader equity markets. In addition to correlation, it is important to consider the beta of the hedge fund index relative to equity markets. For an investor seeking a market-neutral portfolio, this may be a higher-than-desired beta profile. Despite the shortcomings we have described, we do believe hedge fund indexes can provide useful relative information. For instance, if your portfolio of hedge funds normally exhibits correlation to a given hedge fund index, and if over a given month or quarter your portfolio zigs while the index zags, this suggests that your portfolio has done something materially different from the index.

This could be a good thing. We therefore recommend some complementary monitoring approaches investors can use to evaluate the performance of their portfolios:. In conclusion, we believe investors should think of hedge fund indexes as just one tool—and a rather blunt one—for evaluating hedge fund portfolio performance.

For a more holistic evaluation and robust analysis, investors may wish to consider complementing index data with peer group analysis, alpha-beta decomposition and down-market capture statistics for the funds in their portfolios.

We find, however, the overall effect is toward overstating performance. The strategy designs a diversified portfolio of managers with the objective of significantly lowering the risk volatility of investing with an individual manager. It is comprised of all eligible hedge fund strategies; this includes, but is not limited to, convertible arbitrage, distressed securities, equity hedge, equity market neutral, event driven, macro, merger arbitrage, and relative value arbitrage.

The strategies are asset-weighted based on the distribution of assets in the hedge fund industry. MSCI All Country World Index is a stock index that tracks about 3, stocks in 49 developed and emerging market countries, representing a total market capitalization of tens of trillions of dollars.

The views and opinions are solely those of the author as of the date of publication, are subject to change at any time due to market or economic conditions, will not be updated or supplemented after the date hereof and may not necessarily come to pass. The views and opinions expressed herein do not reflect those of all investment personnel at Morgan Stanley Investment Management MSIM or the views of the firm as a whole, and may not be reflected in all the strategies and products that the firm offers.

Certain statements herein are based upon the views and opinions of or data obtained from one or more third parties. MSIM and its affiliates disclaim any and all liability arising from or in connection with any use of or reliance upon any such views, opinions, data, statements or other information. All content herein is protected under copyright and other applicable laws, and may not be distributed or republished without the prior written authorization of MSIM.

This general communication, which is not impartial, is for informational and educational purposes only and not a recommendation, solicitation, offer or solicitation of an offer to buy or sell any securities or otherwise engage in any investment strategies. The information herein does not address financial objectives, situation or specific needs of individual investors. Any charts and graphs provided are for illustrative purposes only.

Any performance quoted represents past performance. Past performance does not guarantee future results. All investments involve risks, including the possible loss of principal. Global Pandemics. Portfolios are subject to market risk, which is the possibility that the market values of securities owned by the portfolio will decline and that the value of portfolio shares may therefore be less than what you paid for them. Market values can change daily due to economic and other events such as natural disasters, epidemics and pandemics, terrorism, conflicts and social unrest that affect markets generally, as well as those that affect particular regions, countries, industries, companies or governments.

It is difficult to predict when events may occur, the effects they may have e. This communication is only intended for and will only be distributed to persons resident in jurisdictions where such distribution or availability would not be contrary to local laws or regulations. Registered in England. Registered No. Registered in Ireland under company number Authorised and regulated by Central Bank of Ireland.

Telephone: 31 Japan: For professional investors, this document is circulated or distributed for informational purposes only. For those who are not professional investors, this document is provided in relation to Morgan Stanley Investment Management Japan Co.

This is not for the purpose of a recommendation or solicitation of transactions or offers any particular financial instruments. Under an IMA, with respect to management of assets of a client, the client prescribes basic management policies in advance and commissions MSIMJ to make all investment decisions based on an analysis of the value, etc.

All investment profits and losses belong to the clients; principal is not guaranteed. Please consider the investment objectives and nature of risks before investing. As an investment advisory fee for an IAA or an IMA, the amount of assets subject to the contract multiplied by a certain rate the upper limit is 2.

For some strategies, a contingency fee may be incurred in addition to the fee mentioned above. Indirect charges also may be incurred, such as brokerage commissions for incorporated securities. Since these charges and expenses are different depending on a contract and other factors, MSIMJ cannot present the rates, upper limits, etc.

All clients should read the Documents Provided Prior to the Conclusion of a Contract carefully before executing an agreement.