BlackRock’s Thematics and Sectors team believe that as this transition unfolds, a number of the beneficiary sectors, beyond renewables, may have been overlooked and now present attractive potential alpha generating opportunities.

The BlackRock BFM Brown to Green Materials Fund invests in companies related to materials that are essential for the low carbon transition and opportunities created by decarbonising materials supply. The materials sector includes metals and mining, cement, chemicals, steel, and construction materials.

As the transition to a low-carbon economy unfolds, the investment team believes that companies in these industries that are decarbonising are expected to benefit from a re-rating as their sustainability risks decrease, resulting in these companies commanding higher multiples. The investment team expect these companies to benefit from lower operational costs and lower decarbonising capital requirements versus higher carbon peers.

The Fund will adopt the ‘Sustainability Improvers’ label under the UK’s Sustainable Fund Disclosure (SDR) regime. To qualify for the label, in complement to an objective of maximising total returns, the Fund targets a pre-defined sustainability objective to invest in assets that have the potential to improve environmental sustainability over time, determined by the potential of those assets to meet a robust, evidence-based standard.

The Fund will apply BlackRock’s proprietary ‘SDR Improver Assessment’ methodology to the companies in which it invests in. This methodology ensures that a minimum of 70 per cent of the Fund’s total assets are invested in equity securities that contribute to the Fund’s sustainability objective and its use of a SDR sustainability improvers label.

The Fund will be managed by Evy Hambro, Olivia Markham and Hannah Johnson in BlackRock’s Thematics and Sectors team, who manage the BGF Brown to Green Materials Fund. The investment team has been managing natural resources portfolios since their formation in 1991 and thematic portfolios since 2001.

Evy Hambro, Global Head of Thematic and Sector Investing at BlackRock says:

“We are targeting what we believe to be an overlooked segment of the value chain for lower carbon technologies. Companies which are high emitters today, but that have credible plans to decarbonise, could offer a significant investment opportunity. As the theme broadens out even further, these companies leading emissions intensity reduction efforts in their industries could benefit from a first mover advantage as the low-carbon materials market develops.

“This strategy has been designed to provide clients with exposure to the Brown to Green Materials theme, recognising that what could drive share prices from here, and what could make a positive difference to the world, is what happens moving forward rather than what’s already happened.”

Olivia Markham, CFA, Managing Director and Portfolio Manager at BlackRock says:

“Materials companies that best navigate the ‘Brown to Green’ transition could benefit from a re-rating in the valuation multiples the market is willing to pay for them. We expect global adoption of lower carbon technologies will drive stronger-than expected demand growth for materials required faster than anticipated, and this will result in higher materials prices and better-than-expected earnings for producers.”

The BFM Brown to Green Materials Fund has an ongoing charges fee (OCF) of 0.92 per cent for its D share class.

The firm writes that the new Fund meets the growing demand seen from UK wealth clients, building on a similar strategy, the BGF Brown to Green Materials Fund, launched in June 2023 for European investors, which has seen assets grow to ~ USD78 million. In the first year of the fund’s launch, there have been a number of highlights:

·        88 per cent of the portfolio is invested in companies on track with some or all of their decarbonisation goals.

·        76 per cent of the portfolio is invested in companies with targets to reduce emissions intensity by over 20 per cent in the medium-term.

·        6.4 per cent reduction in emissions intensity has been recorded on average from 2022 to 2023, as measured across portfolio holdings.

The firm writes that indeed, all Strategy Indexes delivered a positive return and the AH Macro Index was up 3.3 per cent for the year.

The KLS Arete Macro Fund was the top performing Macro UCITS fund in 2024, as well as one of the best performing liquid alternatives funds, returning 19.3 per cent over the year. The fund’s performance also compares favourably to traditional asset classes such as, global bonds (+4.7 per cent) and global equities (+19.2 per cent), the firm says. Other strong performers in the macro peer group include MontLake Oriel – P/E FX Strategy and Brevan Howard Absolute Return Government Bond.

The KLS Arete Macro fund’s outperformance was driven by the managers ability to be nimble around core views and positions and perform well amidst market turbulence, the firm says. In particular, returns were driven by Arete capitalising on both positive markets (notably in April and September) and more challenging markets (such as in June, October, and November) across China and China-related assets.

Since its inception in April 2012, the Arete Macro strategy has annualised net return of 9.2 per cent, annualised volatility 7.6 per cent, and Sharpe ratio of 1.0. Over the strategy’s 12-year history, it has proven to be a strong diversifier to traditional asset classes, with 0.12 correlation to global equities and -0.08 correlation to global bonds.

Looking ahead to 2025, markets are expected to shift from speculative to macroeconomic factors, influenced by US policy changes, Europe’s political fragmentation, China’s gradual deleveraging, and Japan’s exit from ultra-low rates, the firm says. These forces, combined with policy uncertainty, trade tensions, and frequent economic cycle fluctuations, will likely increase market volatility and open new opportunities for macro hedge funds. While traditional growth trends might provide guidance for top-down strategies, abrupt market rotations and shifting correlations will require flexible, tactical approaches.

Alex Ellerby, CFA, Senior Research Analyst – Hedge Funds, Kepler Partners, says: “The macro funds universe produced a mixed set of results in 2024 but with several shining lights within the pack. As we move into 2025, the opportunity set looks incredibly rich as we see increasing dispersion at a global and also regional level between economies. Macro funds are therefore front-of-mind for investors, and we are seeing increased interest in the strategy, against the backdrop of a broader growing bullish stance on hedge funds amongst allocators.”

With these strategies on the rise, Bloomberg polled over 150 quants, research analysts and data scientists in a survey conducted during a global series of client workshops to understand key trends and challenges in investment research.

Data coverage, timeliness, and quality issues with historical data was cited as the top challenge in the industry, with nearly two-fifths (37 per cent) of respondents selecting this option. This was followed by normalising and wrangling data from multiple data providers (26 per cent), and identifying which datasets to evaluate and research (15 per cent).

In line with these challenges, Bloomberg’s survey found that 72 per cent of respondents could evaluate only three or fewer datasets at a time, despite the need from quants and research teams to continually harness more alpha-generating data in today’s data deluge. The findings also show that the typical time it takes to evaluate a single dataset is one month or longer for more than half of respondents (65 per cent).

Firms are still trying to figure out their optimal strategy for managing research data in the face of the aforementioned hurdles. 50 per cent of respondents reported they currently manage the data centrally with proprietary solutions versus outsourcing to third party providers (8 per cent), with more than six in ten (62 per cent) of respondents preferring their research data to be made available in the cloud. Notably, 35 per cent of respondents also would like their data to be made available via more traditional access methods such as REST API, On premise and SFTP, indicating they prefer flexibility in the choice of data delivery channels.

“From in-depth conversations with our research clients, it’s clear there is a desire for new orthogonal datasets as well as a need to harness ‘AI-ready’ data. The journey from data sourcing to extracting alpha is difficult and the continuous ingestion, cleaning, modeling and testing of data is particularly challenging,” says Angana Jacob, Global Head of Research Data, Bloomberg Enterprise Data. “That’s why Bloomberg is committed to building out our multi-asset Investment Research Data product suite, targeted at quantitative and quantamental research, systematic strategies and AI workflows. Our datasets with modeled Python API access enable customers to reduce their time to alpha through deep granularity, point-in-time history, broad coverage and interoperability with traditional reference and pricing data.”

The report, based on a survey of 220 wealth-industry professionals, including investment teams, portfolio managers and financial advisers, reveals that 60 per cent expect their HNW clients will require some degree of personalization – either now or in the near future. Wealth management is evidently at an inflection point as it adapts to the evolving needs and preferences of individual investors.

In the past, personalisation in wealth management was a primarily niche offering, typically reserved for a select group of high-net-worth (HNW) clients. However, MSCI’s research suggests the democratisation of wealth management has transformed personalisation from a luxury to an industry standard, with technological advancements cutting costs and driving efficiency and scalability to provide bespoke portfolios to a much broader client base than ever before:

73 per cent of respondents named personal preferences – such as supporting the transition to net-zero or better corporate governance – as the prime reason wealth clients are seeking more personalized solutions.

58 per cent of respondents believe it is easier to build a new custom model than modify an existing one.

“The demand for personalised portfolios is growing across all client segments, from high-net-worth individuals to emerging affluent investors,” says Alex Kokolis, Global Head of Wealth at MSCI. “A broader set of clients now expect personalization in all aspects of their lives, including financial services, driven by trends in other industries. They want portfolios tailored to their unique goals, values, and preferences.”

As personal preferences gain importance in the composition of wealth portfolios, advisers’ clients are likely to seek assurance that their portfolios are aligned with their values – requiring wealth managers to go beyond the investment information traditionally reported to clients and finding ways to provide greater transparency into what the client’s capital is funding in both public and private markets:

Across all regions, wealth managers anticipate making larger allocations (82 per cent on average) to private assets over the next three years.

However, as interest grows in private markets, advisers (21 per cent) and portfolio managers (40 per cent) view their current solutions for this asset class as insufficient – compared to 59 per cent of investment teams.

Roughly half of all respondents (45 per cent) reported a limited understanding of private assets as the biggest barrier to making higher allocations.

Other notable barriers were the illiquid nature of investments (52 per cent) and the lack of transparency into the asset class (46 per cent) – with fears notably higher among financial advisers (73 per cent and 59 per cent respectively) as they seek to meet client demand for greater assurance and visibility. 

“In private assets, wealth management firms may be able to differentiate themselves through their education and learning offerings just as much as their investment offerings – both for advisers and end-clients,” Joseph Wickremasinghe, an executive director at MSCI Research, says. “Beyond that, tools or frameworks to standardise or streamline the due diligence process for private asset investments, or perhaps access to a slate of pre-vetted investment opportunities, may be another solution that end-clients find appealing. Being able to choose specific private investments from a selected range that have been deemed appropriate for the size of their allocation, their broad liquidity needs and investment preferences could increase their level of comfort with this asset class.”

Technology is at the heart of enabling transparency and personalization – but MSCI’s survey results suggests respondents feel many of their current solutions need to be upgraded to allow them to satisfactorily deliver on HNW clients’ expectations.

When asked to rank the areas in which their current technology solutions fall short, advisers conducting manual monitoring of client portfolios came in top at 45 per cent, followed by 42 per cent reporting a lack of dynamic insights on taxes, risk and other elements that impact decision making.

Wealth managers are also eager for a platform that can provide a single interface to manage all assets within all portfolios (39 per cent) and, of equal interest, is to design an appealing client portal (39 per cent).

“The demand for investment transparency has evolved significantly beyond simple monthly position reports, as today’s wealth clients seek deeper understanding of their investments’ alignment with personal values and financial goals,” Dhruv Sharma, an executive director at MSCI Research, says. “Digital platforms can help wealth managers meet this need by aggregating and presenting complex data in meaningful ways – from traditional exposure analysis across geographic and thematic dimensions to detailed insights into private asset classes, such as private credit and private equity. Wealth solutions providers add value by simplifying complex information without sacrificing depth, helping advisers address critical client concerns while providing clear visibility into portfolio exposures.”

The launches are flagged with the filing of the Palmer Square EUR CLO Senior Debt Index ETF, focused on EUR and USD denominated AAA and AA CLO debt.  The ETFs will include an active multi-strategy ETF providing similar exposure to PSQO, the NYSE-listed ETF currently offered in the US by Palmer Square.

“The launch of these ETFs in Europe underscores our commitment to delivering cutting-edge solutions in complex investment environments across the globe. It is a natural extension of our global expertise in structured credit and demonstrates our ability to meet the rising market demand,” says Angie Long, Chief Investment Officer and Portfolio Manager at Palmer Square Capital. “Leveraging our proprietary benchmarks trusted by institutions worldwide, these new products offer efficient access to a unique and compelling asset class, affirming our commitment to creating value for institutional and professional investors.”

The firm writes that these ETFs will offer capital preservation by targeting cycle-resilient assets with zero historical defaults, including an actively managed multi-asset credit allocation product offering a single-manager solution to simplify portfolio construction and provide enhanced access to the best relative value opportunities across corporate and structured credit.

 The passive products will create investable access to Palmer Square’s deep understanding and research within the senior tranches of the CLO market, the firm says.

“Institutional appetite for our proprietary European CLO indices and debt products further underscores the demand for these innovative ETFs. Our ability to manage and develop these products entirely in-house ensures operational independence and best-in-class execution,” says Taylor Moore, Managing Director and Portfolio Manager.

Strategy-level performance was mixed in December following the November surge, as managers and investors continued to position for an active M&A cycle and more business- friendly policies from the incoming US Presidential administration, while also anticipating continued inflationary pressure and fewer rate cuts from the US Federal Reserve than some investors had expected, the firm says.

New hedge fund launches rose while liquidations declined sharply heading into 4Q24, as investors positioned for an evolution of the geopolitical and economic risks which had defined 2024. The estimated number of new funds launched in 3Q24 increased to 118, up slightly from the prior quarter estimated launch total of 111, while liquidations in 3Q posted a sharp decline to only an estimated 82 closures, the lowest quarterly liquidation total since 2Q06 according to the latest HFR Market Microstructure Report, released by HFR. As previously reported by HFR, total hedge fund industry capital reached another record level heading into 4Q, beginning the quarter at an estimated USD4.46 trillion.

New fund launches continue to exhibit industry strength and investor demand, with the estimated YTD total of 375 launches over the first three quarters of 2024 topping same period year over year. Liquidations also fell over the same period last year, with 326 funds closing, below the estimated 311 liquidations over same period last year.

The HFRI Asset Weighted Composite Index gained +0.8 per cent in December while the HFRI Fund Weighted Composite Index (FWC) declined -0.2 per cent for the month, according to data released today by HFR. Strategy gains were led by uncorrelated Macro and Relative Value Arbitrage strategies, while directional Equity Hedge and Event Driven exposures declined, with each of these paring strong annual gains and the strongest single monthly return for 2024 in November.

The HFR Cryptocurrency Index fell -2.4 per cent in December after gaining +35.7 per cent in November on the favourable outlook for cryptocurrency by the incoming Trump administration, ending the volatile year with a +59.8 per cent return. The recently launched HFRI Multi-Manager/Pod Shop Index was essentially flat for December, adding +0.01 per cent for the month as managers navigated a pullback from strong election-related gains in November. Multi-manager funds continued to position for the policies of the incoming administration across all sectors including energy, import, technology, and financials.

Hedge fund performance dispersion tightened in December, as the top decile of the HFRI FWC constituents advanced by an average of +5.5 per cent, while the bottom decile fell by an average of -7.4 per cent, representing a top/bottom dispersion of 12.9 percent for the month. By comparison, the top/bottom performance dispersion in November was 17.7 per cent. For the full year 2024, the top decile of FWC constituents gained an estimated +37.3 per cent, while the bottom decile declined -11.7 per cent, representing a top/bottom dispersion of 49.0 per cent. Approximately 45 per cent of hedge funds produced positive performance in December.

Uncorrelated Macro strategies led performance in December, as equities and bonds declined on expectations for fewer rate cuts by the US Federal Reserve in 2025. The HFRI Macro Asset Weighted Index advanced an estimated +1.6 per cent in December, while the HFRI Macro (Total) Index gained +1.1 per cent. Macro sub-strategy gains were led by the HFRI Macro: Commodity Index, which jumped +3.6 per cent, and the HFRI Macro: Systematic Diversified/CTA Index, which gained +1.2 per cent for the month. For the full year 2024, the HFRI Macro Index was the lowest performing main strategy index, gaining +5.95 per cent, with Macro sub-strategy gains led by the HFRI Macro: Multi-Strategy Index, which advanced +7.7 per cent for 2024.

Fixed income-based, interest rate-sensitive strategies produced another steady gain despite rising bond yields in December with the HFRI Relative Value (Total) Index gaining an estimated +0.2 per cent for the month to notch its 14th consecutive monthly gain and 27th gain in last 30 months. RVA strategy performance was led by the HFRI RV: Asset Backed Index, which advanced +0.55 per cent for the month, followed closely by the HFRI RV: Volatility Index, which added +0.49 per cent. For the year, the HFRI RV: Yield Alternatives Index led RVA sub-strategies with a return of +11.3 percent in 2024.

Equity Hedge (EH) funds, which invest long and short across specialised sub-strategies, pared industry leading performance gains in December despite topping equity market declines, with the HFRI Equity Hedge (Total) Index falling an estimated -0.7 per cent for the month to bring the FY 2024 return to +12.3 per cent, which led all main strategy indices for the year. EH sub-strategy performance was led by the HFRI EH: Technology Index in December, surging +2.7 per cent for the month, while the HFRI EH: Equity Market Neutral Index added +0.5 per cent. For the full year 2024, EH sub-strategy performance was led by the HFRI EH: Technology Index which surged +19.6 per cent.

Event-Driven (ED) strategies, which often focus on out-of-favour, deep value equity exposures and speculation on M&A situations, declined in December despite continued expectations for a strong M&A cycle into 2025. The HFRI Event-Driven (Total) Index fell an estimated -1.3 per cent for the month, paring the strong annual gain to +8.7 per cent. ED sub-strategy declines were led by the HFRI ED: Activist Index, which fell -4.6 per cent for the month, while the HFRI ED: Special Situations Index declined -1.5 per cent in December. For the full year 2024, ED sub-strategy performance was led by the HFRI ED: Multi-Strategy Index, which jumped +12.6 per cent.

Liquid Alternative UCITS strategies posted a narrow gain for December, with the HFRX Absolute Return Index gaining +0.08 per cent while the HFRX Global Hedge Fund Index added +0.01 per cent for the month. Strategy gains were led by the HFRX Event Driven Index, which gained +0.48 per cent in December, while for the full year 2024, HFRX performance was led by the HFRX Equity Hedge Index, which gained +7.83 per cent.

Industry-wide fees declined slightly into 4Q24, as the average management fell one basis point from the prior quarter to an estimated 1.34 per cent, while the average incentive fee fell to 15.92 per cent, a decline of five basis points over the quarter.

“Hedge funds gained to conclude a volatile and uncertain 2024n, navigating a very different market environment than the election euphoric, risk-on sentiment that dominated November, as equities declined and bond yields rose, and as persistent inflationary pressures tempered expectations for US Federal Reserve rate cuts in 2025. Hedge fund performance was led by uncorrelated Macro & fixed income-based Relative Value Arbitrage strategies, underscoring the defensive outperformance of equity market declines and the benefits of strategy diversification,” says Kenneth J. Heinz, President of HFR. “New fund launches increased while liquidations experienced a steep drop entering 4Q24, as record industry capital positioned for significant policy changes regarding trade, tariffs, regulatory oversight, and immigration. Institutions are likely to increase allocations to hedge funds which have demonstrated their strategy’s robustness through the volatile 2024 and which are tactically positioned for the diverse and unpredictable impacts of rapidly evolving policy changes in 2025.”

The firm writes that MFIO offers diversified exposure to fixed income relative value strategies with a strict duration-neutral mandate. The fund is a UCITS vehicle with daily liquidity and is domiciled in Ireland.

MFIO is a fixed income fund that aims to deliver absolute return performance with no duration and a volatility in line with that of traditional fixed income indices. The fund leverages on a combination of Ossiam’s asset management and investment bank expertise to implement a wide range of strategies with different rationales across interest rates, foreign exchange and credit. Each individual strategy must positively contribute to the overall diversification and risk management of the portfolio before being implemented.

Luc Dumontier, Head of Investments and Operations at Ossiam, says: “In light of the significant changes in the interest rate market, constructing a robust portfolio will be increasingly challenging. With its strict duration neutral mandate and strong focus on diversification, we believe MFIO stands out as a compelling addition to investors’ portfolios.”

“The Multi Fixed Income Opportunities Fund is a natural extension of our offering that capitalises on our operational set-up and our research capabilities. MFIO meets the evolving investor demand for flexible and market-neutral liquid fixed income exposure,” says Bruno Poulin, Chief Executive Officer at Ossiam.

Ossiam provides a range of investment vehicles that span from index replication and enhanced beta, including ETFs, to liquid alternatives. Ossiam’s fund range incorporates long-short strategies which aim to deliver market-neutral, absolute returns in equities and fixed income. Ossiam provides investors with advanced systematic investment strategies grounded in quantitative research that are easy to comprehend and fully transparent.

With depositary assets growing from USD17 billion in 2018 to USD100 billion in 2024, SEI writes that it has experienced significant demand for this service and already provides depositary services to more than 430 funds from other fund centers.

SEI writes that it is the largest fund administrator for private market funds in Luxembourg that are managed by a US firm and the largest private credit fund administrator by assets globally.

Over the last two decades, private markets have consistently outperformed corresponding public markets indexes. However, as the demand for these investments continues to grow, asset managers are managing a complex ecosystem of providers to support their operational footprint. The launch of these services in Luxembourg will complement SEI’s offering that includes fund administration, registrar and transfer agent, and regulatory reporting services—providing asset managers with a single point of contact for their technology and operations requirements.

Bryan Astheimer, Head of SEI’s Investment Managers business, EMEA, says: “The demand for alternatives and European private markets continues to grow, and investment managers of all sizes are looking to expand their investor base and introduce new sources of capital, and this launch further underscores our growth and commitment in Luxembourg. Our strategic focus on scaling our global operational footprint supports our clients to efficiently launch funds—while meeting compliance requirements in different domiciles.

“The addition of our depositary services not only enhances our comprehensive offering across Europe, but it also positions us well to capitalise on these trends and opportunities to drive growth for our clients and SEI.”

SEI has delivered depositary services in Ireland for 25 years, and the company is the largest non-bank depositary in Ireland by assets under management (AUM) and the second biggest depositary in Ireland for servicing non-Irish funds by AUM.

Depositary services in Luxembourg will further support funds that primarily invest in private assets, the firm says, adding that alternative investment fund managers can access the company’s depositary services as part of a suite of fund administration services or on a standalone basis. Services include:

·       Cash flow monitoring

·       Oversight

·       Ownership verification

·       Safekeeping of assets

SEI can also provide depositary services to non-European Union managers looking to market non-EU funds to European Union investors under the Depo Lite Regime.

The HFRI Fund Weighted Composite Index (FWC) surged +2.6 per cent in November, while the HFRI Asset Weighted Composite Index jumped +2.1 per cent for the month, according to data released today by HFR. Strategy gains were led by Equity Hedge and Directional Event Driven exposures, with each of these posting the strongest monthly gain for 2024.

The recently launched HFRI Multi-Manager/Pod Shop Index gained +2.6 per cent for the month as managers positioned for the policies of the incoming administration across all sectors including energy, import, technology and financials. The HFR Cryptocurrency Index also surged +46.0 per cent on favourable outlook for cryptocurrency by the incoming Trump administration, vaulting its YTD return to +76.2 per cent through November.

HFR special report: Presidential politics and hedge funds

Last month, HFR released a special research report featuring in-depth quantitative analysis on the performance of hedge funds through the lens of which US political party administration held the office of the president during specific time frames. The firm writes that this unique and insightful special report includes a complete historical comparison of presidential terms since 1990 across many financial, economic and political cycles. The report is available for complimentary download here.

Hedge fund performance dispersion expanded in November, as the top decile of the HFRI FWC constituents advanced by an average of +12.3 per cent, while the bottom decile fell by an average of -4.9 per cent, representing a top/bottom dispersion of 17.2 per cent for the month.

By comparison, the top/bottom performance dispersion in October was 11.6  per cent. In the trailing 12 months ending November 2024, the top decile of FWC constituents gained +45.3 per cent, while the bottom decile declined -10.9 per cent, representing a top/bottom dispersion of 56.3 per cent. Approximately 75 per cent of hedge funds produced positive performance in November.

Equity Hedge (EH) funds, which invest long and short across specialised sub-strategies, jumped in November with the HFRI Equity Hedge (Total) Index advancing an estimated +3.4  per cent for the month to bring the YTD return to +13.4  per cent, which leads all main strategy indices YTD 2024. EH sub-strategy gains were led by the HFRI EH: Technology Index which surged +6.7 per cent for the month, the strongest monthly return since inception. The HFRI EH: Quantitative Directional Index jumped +6.1 per cent for the month and is the leading area of sub-strategy performance YTD 2024, vaulting +21.5 per cent through November.

Event-Driven (ED) strategies, which often focus on out-of-favour, deep value equity exposures and speculation on M&A situations, surged in November on the US election results and expectations for strong M&A cycle into 2025. The HFRI Event-Driven (Total) Index jumped +3.3 per cent, the strongest monthly gains for 2024.

ED sub-strategy gains were led by the HFRI ED: Activist Index, which vaulted +4.85 per cent, while the HFRI ED: Multi-Strategy Index jumped +4.5 per cent for the month. Other ED sub-strategies posting strong gains included HFRI ED: Special Situations Index and HFRI ED: Distressed Index, with these advancing +3.4 and +2.9 per cent, respectively.

Macro strategies also advanced in November, reversing prior month declines as US interest rates traded in a wide range and managers positioned for the policy changes for the incoming Trump administration. The HFRI Macro (Total) Index advanced +1.9 per cent in November, the strongest monthly gain since March 2024. Macro sub-strategy gains were led by the HFRI Macro: Active Trading Index, which jumped +2.7 per cent, the HFRI Macro: Multi-Strategy Index, which advanced +2.35 per cent, and the HFRI Macro: Systematic Diversified Index, which added +2.3 per cent.

Fixed income-based, interest rate-sensitive strategies produced another steady gain in November, with the HFRI Relative Value (Total) Index adding an estimated +1.05 per cent for the month to notch its 13th consecutive monthly gain and 25th gain in last 28 months. RVA strategy performance was led by the HFRI RV: FI-Sovereign Index, which advanced +2.1 per cent for the month, followed closely by the HFRI RV: FI-Multi Strategy Index, which added +2.0 per cent. The HFRI RV: FI-Convertible Arbitrage Index leads all RVA sub-strategies for 2024 with a gain of +10.8 per cent.

Liquid Alternative UCITS strategies also gained in November, as the HFRX Market Directional Index advanced +1.8 per cent while the HFRX Global Hedge Fund Index added +0.8 per cent. Strategy gains were led by the HFRX Macro Index, which gained +1.5 per cent, and the HFRX Equity Hedge Index, which added +1.3 per cent.

“Hedge funds surged in November in response to the US Presidential election results, with managers positioning favourably for the incoming Trump administration with expectations for a stronger economy, lower taxes, a more business-friendly regulatory environment, and a strong M&A cycle, with broad-based monthly gains led by Cryptocurrency, and directional Event Driven and Equity Hedge exposures,” says Kenneth J. Heinz, President of HFR.

“With clarity on the US election, expectations for falling geopolitical risk and incoming administration stated policy priorities to continue to lower inflation, expectations for hedge fund industry performance and asset growth in 2025 are likely to continue to increase as investors position for acceleration of the powerful risk on sentiment that dominated November. Despite enthusiasm for the continuation of this powerful trend, managers are also likely to position for unexpected volatility and dislocations as new policies impact global trade and commerce. Institutions looking to access these powerful, specialised trends while also maintaining opportunistic, defensive portfolio positioning are likely to increase exposure to funds which have demonstrated their strategy’s effectiveness and robustness over the past few years.”

Growth in equity and option markets is stagnant and exchange groups are focusing on acquisitions to expand adjacent revenue streams, particularly in data products, Morningstar writes. Investments are expected in private market data sets and direct indexing capabilities, aiming to add value through synergies with existing operations.

Exchange groups operate marketplaces facilitating buying and selling of goods, contracts, and assets. They include primary markets (for launching new products), secondary markets (for trading existing assets), and services like clearing, settlement, and data products.

Key takeaways from the report include:

Competitive Advantages: Exchanges benefit from strong economic moats. Notably, their investments in index businesses create intangible asset advantages (e.g., benchmark indexes rarely replaced despite competition). Factors such as liquidity, integrated clearing, asset fungibility, and control of underlying assets determine their ability to maintain market dominance.

European Market Insights:

Stock Market: Developed but underperforming compared to the US in activity, issuers, and valuations.

ETF Market: Gaining traction with retail investors seeking low-cost, passive investing exposure.

Bond Markets: Corporate bonds are underdeveloped compared to the US, while sovereign bonds remain mature.

Equity trading volume in Europe faces structural growth challenges.

Regulatory and Competitive Landscape:

Competition in equity derivatives and index businesses is intensifying but is somewhat mitigated by structural protections.

Regulated markets have ceded share since 2022, but there remains a role for “lit-markets” with increasing competition.

Mergers and Acquisitions: Most M&A activity involves smaller bolt-on acquisitions, as exchange groups expand their offerings.

ESG Trends: ESG risks for exchanges are rated primarily as low or negligible, with product governance, human capital, data privacy, and cybersecurity identified as the most significant risks. Most have a Low rating (83 per cent) while Deutsche Boerse has a Negligible rating.

“Exchange groups remain pivotal in global markets, acting as facilitators for trading and offering essential services like clearing and data products,” says Niklas Kammer, Equity Analyst at Morningstar. “With stagnant growth in equity and option markets, we’re seeing a strategic pivot toward acquisitions—especially in the realm of data products. This focus on innovation and strategic expansion ensures exchange groups continue to maintain a competitive edge while adapting to evolving market demands.”