Hedge fund performance was mixed in February, with composite returns ranging from -0.32% to +0.16%, depending on the methodology used. This put hedge funds down between 1.85% and 3.08% for the first two months of the year, according to Citigroup’s Hedge Fund Industry Snapshot for March 2015. The monthly report also looks at hedge-fund assets under management (“AUM”) and flows, fund profiles, and leverage and shorting trends.
AUM and Flows
Among fund categories, Global Macro strategies stood out. They posted gains of 1.55% in February, while funds in the Event Driven, Long/Short Equity, and Fixed Income Arbitrage categories underperformed, posting respective losses of 0.25%, 0.28%, and 0.75% for the month.
Poor performance may be exacerbating investor outflows, which were net positive for the second time in the past six months. Investors pulled $4.4 billion from hedge funds in February, adding to the $12.7 billion in outflows the prior month. Through February, investor flows stand at -$17.1 billion, compared to +$10.3 billion for the first two months of 2015. These outflows plus performance losses have pushed total hedge fund AUM below $3 trillion for the first time since May 2014.
Large funds with more than $750 million in AUM were the worst performers in February, returning an average of -1.66%. Medium-size funds, with AUM of more than $350 million but less than $750 million, fared best but still posted losses of 0.99%. Small funds fell by 1.05%. Despite these monthly returns, large funds still account for an estimated 77% of total industry AUM, and medium-size funds account for the least (8.4%).
Leverage and Shorting
In the aggregate, hedge funds de-levered slightly to 2.75x AUM in February from 2.76x in January. Global Macro is by far the most heavily leveraged category at 4.60x, followed by Market Neutral at 3.90x and Multi-strategy at 3.83x.
As has been the case for many months in a row, Information Technology and Consumer Discretionary stocks remain the most heavily shorted (and most heavily covered) of all sectors. Combined, the two categories accounted for 33.6% of short sales and 3.87% of short covers by hedge funds in February.
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Past performance does not necessarily predict future results.
Jason Seagraves contributed to this article.