Tariffs Uncertainty Bites into HF Performance in February — Evening Brief – 03.19.25
Hedge fund managers faced significant challenges in February from trade and tariff uncertainty, which fueled a stock market collapse and led to a notable drop in overall performance, according to the latest Hedge Fund Research (HFR) analysis.
After a strong start to 2025 with a 1.32% gain in January, HFR’s Fund Weighted Composite Index, the primary global hedge fund benchmark, fell 0.47% in February. Relative value arbitrage and event-driven strategies posted gains, but long/short equity and macro hedge funds declined, with only 50% of HFR-tracked funds achieving positive returns for the month.
HFR President Kenneth Heinz noted that February saw equity, fixed income, commodity, currency, and cryptocurrency markets rocked by “rapid and violent micro-cycles of oscillating risk-off and risk-on sentiment.” High-profile firms like Millennium Management (-1.3%), Brevan Howard (-1.6%), and Citadel (-1.7%) all posted losses for the month, per Bloomberg data.
However, HFR President Kenneth Heinz highlighted that certain managers stayed “tactically flexible and opportunistic,” capitalizing on specialized sub-strategies like active trading and volatility funds to deliver gains.
As markets turned downward, equity hedge funds, tracked by HFR’s Equity Hedge (Total) Index, dropped 0.66% in February, leaving their year-to-date gains at just below 1%. In contrast, the U.S. stock market faced a steeper decline, with the S&P 500 falling 1.4% last month, resulting in a year-to-date increase of only 1.2% since January 2025.
Beyond the broader trends, multi-strategy equity hedge funds surged 3.07% in February, boosting their year-to-date returns to 5.14%. AQR Capital Management’s Apex fund, led by Cliff Asness, gained 2.8% for the month, reaching a year-to-date increase of 5.4%. Equity market neutral managers also held steady, posting a 0.28% rise in February.
A pervasive risk-off mood in the U.S. technology, media, and telecommunication (TMT) sector amplified losses across long/short equity hedge funds in February. Tech-focused equity managers saw nearly a 4% decline, while healthcare strategies fell 2.44%, with fundamental, growth, and quant directional funds all recording downturns.
Macro hedge funds declined 1.47% in February, erasing their 1.03% January gain and leaving the sector—which capitalizes on macroeconomic and geopolitical trends across equities, bonds, currencies, commodities, and other assets—down 0.45% year-to-date.
Within the macro hedge fund sector, active trading strategies rose 2%, and discretionary thematic managers gained 0.89% in February. However, the broader macro space finished the month in the red, with systematic diversified (-2.78%), commodities (-2.38%), and currency (-1.92%) strategies suffering the steepest declines.
On a brighter note, event-driven hedge funds and fixed income relative value strategies adeptly weathered the turmoil, posting modest gains for investors in February.
Within event-driven strategies, activist funds were the sole decliners, dropping 1.12% in February, while multi-strategy (1.45%), credit arbitrage (1.04%), and merger arbitrage (0.68%) managers posted gains. Overall, event-driven funds are up 1.19% year-to-date since January 2025.
Fixed income relative value strategies lead hedge fund performance in 2025, boasting a 1.85% year-to-date gain after a 0.79% rise in February. Convertible arbitrage strategies topped the category with a 3.37% monthly increase, followed by volatility funds, which advanced over 1%.
HFR highlighted February’s uneven hedge fund performance, with the gap between top and bottom performers widening. The top decile of the Fund Weighted Composite Index averaged a 6.5% gain, while the bottom decile shed 8.3%, creating a 14.8% top-to-bottom spread, up from January’s 12.1% dispersion.