Unified Global Alternatives – Hedge Fund Bulletin

Global markets delivered mixed results in December, shaped by muted risk appetite despite the anticipated US Federal Reserve rate cut, ongoing uncertainty around AI/technology sector leadership, and concerns about the soft labor market and manufacturing weakness. US equities: Dow Jones +0.73%, S&P 500 ‑0.05%, NASDAQ ‑0.53%. Europe: MSCI Europe +2.61%, FTSE +2.08%, DAX +2.74%. Asia DM: Nikkei 225 +0.17%, consolidating strong prior‑month gains. Emerging Markets: China +2.06%, Brazil +1.29%, India ‑0.57%, reflecting divergent performance. Rates/credit: US 2Y Treasury at 3.48% (from 3.49%); US 10Y at 4.17% (from 4.02%). Barclays US IG ‑0.20%, HY +0.57%. Commodities/FX: Gold +2%, oil ‑1.5%. EUR strengthened (1.1601 → 1.1733); USD +0.46% vs JPY (156.03 → 156.75).

Sources: Pound Sterling Live, Exchange Rates UK, U.S. Department of the Treasury, Bloomberg, Gold Price, Business Insider

Equity Hedge: Most managers generated broadly positive results in December, with AI/technology specialists leading performance while cleaner positioning and reduced momentum exposure supported gains across generalist and European portfolios. Non US markets—particularly Korea, China, and Japan—outperformed, and financials added to results. The year end backdrop pointed to constructive early 2026 tailwinds.

Relative Value / Event Driven: Most sub strategies delivered positive results, with quantitative equity approaches leading and European models outperforming the US and Japan. Convertible bonds outpaced equities, issuance stayed strong, and fixed income relative value strategies benefited from stable spreads and a quiet rates backdrop.

Credit / Income: Carry-driven ABS, agency, and short‑duration credit led modest gains, while corporate long/short was mixed and overall positioning turned more neutral.

Trading / Macro: Trading strategies were broadly positive, with macro and commodity themes benefiting from equity and metals positioning.

Constructive Macro Backdrop: December delivered broad gains across the platform, supported by a favorable macro environment, easing volatility, and stronger sentiment in Asia despite geopolitical noise.

Healthier Equity HF Positioning: Equity Hedged managers benefited from reduced leverage, lighter momentum exposure, and cleaner positioning, with AI/technology specialists and European managers driving results.

Stable Credit & Strong Issuance: Relative Value strategies gained from robust convertible issuance, stable credit spreads, and a calm rates environment that supported both quant equity and fixed income RV approaches.

Carry Led Credit Gains: Credit/Income strategies saw modest positive returns, primarily from carry in asset backed, agency, and short duration private credit, while corporate L/S delivered mixed outcomes.

Diversified Trading Contributions: Macro and commodity strategies added positively through defense/tech equity trading, US power and gas, and metals exposures, providing diversification amid ongoing market dispersion.

Performance snapshot

Overall market commentary

Risk assets produced mixed performance in December. The overall market landscape was somewhat muted despite the US Federal Reserve delivering the anticipated interest rate cut. Near-term directional uncertainty surrounding the AI/Tech sector weighed on investor sentiment along with the higher bar for additional interest rate cuts. Additionally, a soft labor market and weakness in the manufacturing sector also fueled concerns regarding economic momentum. The Dow Jones Industrials posted positive performance of 0.73%. Conversely, the S&P and the NASDAQ posted losses of -0.05% and -0.53%, respectively. The European indices generated positive performance with the MSCI Europe, DAX and FTSE producing gains of 2.61%, 2.74% and 2.08%, respectively. Asian developed markets produced modestly positive results with the Nikkei 225 generating a gain of 0.17%, consolidating strong gains from the previous month. Emerging market indices produced mixed performance in December. Chinese and Brazilian markets rallied 2.06% and 1.29%, respectively, while the Indian market lost -0.57%. US interest rate markets were mostly mixed in the wake of the expected 25bps cut from the Federal Reserve. The two-year US Treasury yield inched lower to 3.48% from 3.49%, while the ten-year US Treasury yield increased to 4.17% from 4.02%. The Barclays US Corporate Investment Grade Index eased -0.20%, while the Barclays US Corporate High Yield Index gained 0.57% despite higher longer-term yields. Commodity prices were again mixed in December with gold rising 2% on the back of strong inflows. Conversely, oil fell 1.5% despite ongoing tension around Venezuela. In currency markets, the Euro rose 1.14% to 1.1733 from 1.1601, while the US dollar rallied 0.46% against the Japanese Yen from 156.03 to 156.75.

Source returns: UGA – Hedge Funds. As of December 31, 2025. Historical performance indications and financial market scenarios are not reliable indicators of future performance.

US Equity Hedged strategies generally produced positive performance in December. Gains were primarily driven by more idiosyncratic factors given the absence of a material directional move across the broader market. Despite the lack of a significant beta driver, the market did experience some intramonth volatility and notable rotation under the surface. The growth to value rotation that emerged in November continued at a more moderate pace in December. This was in line with further market broadening as financials, communications and materials were the top performing sectors, while utilities lagged meaningfully due to declines in names associated with the AI buildout. Alpha at the industry level as measured by various proxies was strong, with contributions from both the long and short portfolios, and a notable positive spread between crowded long and short positions.

European Equity Hedged strategies generally produced positive performance in December. Gains were primarily driven by beta gains, despite a month where the region was net sold, mainly via single names. Across the industry, European fundamental managers increased their gross exposure throughout the month by +11.5% to 197.4%, its 98th percentile on a three year basis. Net exposures increased by +4.4% to 71.2%. The long / short ratio increased by +0.3% to 2.128 its 90th percentile on a three year basis.

Asian Equity Hedged strategies generally produced positive performance in December. Gains were broad-based, with gains generated across China, Japan and Korea. In Japan, markets experienced early‑month pressure amid speculation around a potential December BoJ rate hike and concerns regarding long‑term interest rates. However, financials and AI-related stocks supported the market. In China, markets were more mixed as offshore markets were weaker in December but domestic markets were positive. The weakness was more driven by profit taking after a strong year and limited policy surprises from the Central Economic Work Conference. The Chinese equity market still managed to finish the year with the best annual returns since 2017.

HFRI Equity Hedge Total Index:

Fixed income relative value strategies generally produced positive performance in December. All managers on the platform posted positive returns. Gains were broad based including European tenor basis and yield curve strategies that continued to benefit from the pension reform thesis, as well as paid Japan rates and associated cross currency basis strategies. Macro and yield curve trading was also generally positive, as were inflation themes. Swap spread trading produced more mixed results, particularly in the US.

Capital structure / volatility arbitrage strategies generated mixed returns in December. The month was marked by pronounced volatility and dispersion in AI-linked convertibles. Segments such as AI infrastructure posted gains, while other areas such as data center, neo-cloud and AI-computing-convergence names simultaneously experienced losses, resulting in significant performance dispersion. Despite a mixed equity landscape and weaker investor sentiment, there was no notable deterioration in perceived credit quality for AI-related issuers. Digital assets-related names also had only limited impact on their perceived credit quality. Thin year-end liquidity amplified market moves, while credit markets remained relatively resilient and stable. Primary market was robust early in the month, with global issuance totaling USD 12.3bn (USD 11.4bn in the US), although new issuance slowed and investor selectivity increased. Volatility arbitrage strategies generated modestly negative performance in December. While gains were seen in short volatility trades for the Russell 2000 and VIX strategies, as well as long volatility in gold, theses were offset by losses from long volatility positions in the S&P 500, Nasdaq 100 and financials sector. While index-level volatility remained relatively quiet into year-end, opportunities in single-stock volatility emerged as systematic options selling continued to pressure near-term volatility pricing.

Merger arbitrage and event-driven strategies generated mixed to positive performance in December. Average annualized spreads for 0% to 30% deals ended at 6.9%, up from 5.7% the prior month, while median spreads ended the month at 4.4% vs. 4.2% in November. The deal environment, from both a regulatory as well as market perspective, continued to be conducive to additional deals being announced. The total US spread opportunity finished the month at approximately ~USD 19bn, or +4% compared to the end of November, with 10 transactions over USD 1 bn in size announced in December. Ongoing arbitrage spreads tightened by +0.3% and +0.4% in December on a market capitalized-weighted basis and at a median basis, respectively.

Agency MBS strategies generally produced positive performance in December. Results were fairly consistent as every manager produced gains during the month. In terms of performance drivers, carry was a key contributor to performance. At the asset class level, mortgage derivatives generated profits, while select mortgage pool investments were also accretive. From a prepayment perspective, speeds were generally slower compared to model projections.

Quantitative equity strategies generally produced mostly positive performance in December. Overall results reflected a decent degree of manager dispersion where there was positive alpha generation, which more than offset some modest beta headwinds. From a factor perspective, crowdedness (long and short), asset selection, domestic China, and crowdedness momentum were among the largest alpha contributors to returns. This was partially offset by losses from medium-term momentum, consumer discretionary, short-term momentum factors and size. There were some broad-based headwinds from the factor space as both quality and low beta detracted, although factor-oriented managers produced more mixed performance. Technical models generally fared better than fundamental ones. 

HFRI Reltive Value Total Index:

Corporate credit strategies generally produced positive returns in December. Traditional corporate long / short strategies generated mostly positive performance in December. Most managers finished in positive territory with only one fund producing a negative result. At the portfolio level, long investments were the key source of profits. Conversely, short positions generally produced losses. Dispersion was elevated during the month as managers with more exposure to idiosyncratic situations outperformed due to company-specific catalysts. Corporate long-biased sub-strategy also produced a positive return in December. All funds were additive and outperformed relative to the high yield and leveraged loan markets. Profits were primarily attributable to long investments as managers benefited from a combination of positive carry and mark-to-market gains. Managers benefited from a combination of tightening market spreads and company-specific catalysts. In particular, investments in the telecommunication, utility, and emerging market sectors were accretive.

Asset back strategies (ABS) generally produced positive returns in December. At the portfolio level, interest income was the largest source of profits as mark-to-market gains were fairly modest. In terms of sector level drivers, investments in RMBS and SRT performed well and were the largest contributors to performance. Conversely, CLO equity underperformed during the month and was generally a drag on returns.

Reinsurance / ILS strategies generally produced positive performance in December. Results were mainly a function of carry (coupon income for the cat bond manager and premium accrual for the collateralized reinsurance manager). Spreads ended the month modestly wider, which offset some of the coupon income for the cat bond manager. There were no material loss-producing events in December. 

HFRI ED: Credit Arbitrage Index: