Hedge funds dipped 2.61% in December, according to the Barclay Hedge Fund Index compiled by BarclayHedge, a division of Backstop Solutions, meaning it was down 5.08% for the year.
The loss was less significant, however, than that of the S&P 500 Total Return Index, which dropped 9.03% in December, to end down 4.38% for 2018.
While lowering its projections for future interest rate hikes, the US Federal Reserve raised its benchmark rate a quarter-point in December. That, coupled with extreme volatility in equity markets was a major factor in December’s hedge fund downturn, BarclayHedge says. Other issues affecting investor sentiment were the state of the Chinese economy, which saw a 4.4% drop in exports in December, the largest such decline in two years. Meanwhile, consumer confidence fell significantly in the Eurozone in December, driven in part by a decline in industrial output in Germany.
Most of Barclay’s hedge fund indices showed declines in December. Notably, Healthcare & Biotechnology dropped 7.32% while the Equity Long Bias Index was down 5.22%. The Technology Index was down 4.54% for December; the Emerging Markets Eastern European Equities Index was down 4.11% for the month, the Emerging Markets Eastern Europe Index, down 3.84%; and the Distressed Securities Index was down 3.44%.
A handful of indices – most of them emerging markets indices – posted gains, including the Emerging Markets Latin American Equities Index, up 0.47%; the Equity Market Neutral Index, up 0.39%; the Emerging Markets Other Index, up 0.34%; and the Emerging Markets Latin America Index, up 0.29%.
Across the board, 2018 proved a tough year for hedge funds, with the lion’s share of indices showing downturns for the year. In particular, a number of emerging markets indices were down significantly, including several posting double-digit downturns; Emerging Markets Global Fixed Income Index, down 24.78%; the Emerging Markets Global Equities Index, down 13.66%; the Emerging Markets Asian Equities Index, down 13.40%; the Emerging Markets Global Index, down 11.46%; the Emerging Markets Index, down 10.98%; and the Emerging Markets Eastern Europe Index, down 10.58%.
Indices that posted gains for 2018 included the Technology Index, up 1.52% for the year; the Healthcare & Biotechnology Index, up 1.37%; the Convertible Arbitrage Index, up 0.58%; the Merger Arbitrage Index, up 0.46%; and the Fixed Income Arbitrage Index, up 0.34%.