Unified Global Alternatives – Hedge Fund Bulletin

Overall market commentary

Risk assets produced positive performance in January. The overall market landscape, while fairly subdued at the broader index levels, experienced a significant amount of rotation across sectors, elevated dispersion and volatility across certain market segments. Additionally, the period featured the beginning of corporate earnings season and the nomination of the next chair of the US Federal Reserve. The Dow Jones, S&P and NASDAQ posted positive performance of 1.73%, 1.37% and 0.95%, respectively. The European indices generated positive performance with the MSCI Europe, DAX and FTSE producing gains of 3.07%, 0.43% and 2.99%, respectively. Asian developed markets produced strongly positive results with the Nikkei 225 generating a gain of 5.93%, extending the rally from last quarter. Emerging market indices produced mixed performance in January. Brazilian and Chinese markets rallied 12.56% and 3.76%, respectively, while the Indian market lost -3.46%. US interest rate markets were modestly weaker given some uncertainty around near-term US Fed policy direction and the Fed’s independence. The two-year US Treasury yield moved higher to 3.52% from 3.48%, while the ten-year US Treasury yield increased to 4.24% from 4.17%. The Barclays US Corporate Investment Grade Index rose 0.18%, while the Barclays US Corporate High Yield Index gained 0.51%. Commodity prices were stronger in January with gold rising 13% on the back of strong inflows and growing speculative length. Oil also rallied, gaining 13.5% on fears of escalating tensions between the US and Iran. In currency markets, the Euro rose 1.03% to 1.1854 from 1.1733, while the US dollar declined -1.61% against the Japanese Yen from 156.75 to 154.22.

Source returns: UGA – Hedge Funds. As of January 31, 2026. Historical performance indications and financial market scenarios are not reliable indicators of future performance.

US Equity Hedged strategies generally produced positive performance in January. Return dispersion across managers was wide, with meaningful variation observed across cohorts. Healthcare focused managers experienced more pronounced weakness from both absolute and value add perspectives. Market conditions were broadly supportive of risk assets, with a rotation favoring cyclical and small capitalization stocks. Select segments of large cap technology, particularly software, served as a funding source for this rotation. This dynamic continued to reinforce the broader shift from growth to value that has been underway for several months. From a sector perspective, energy, materials, and consumer staples outperformed, while technology and financials lagged. Overall, the month was constructive for alpha generation, driven primarily by long exposures, as the ongoing ‘low quality’ rally created headwinds for short side alpha.

European Equity Hedged managers generally produced positive performance in January. Manager results were driven by both beta and alpha gains. Overall, performance was the best since April last year. Alpha gains were driven by industrials, utilities, concentrated trades, and momentum, partially offset by losses from financials, information technology, and value. During the month, European-focused managers outperformed US-focused managers but lagged Asia-focused managers. Across the industry, European fundamental managers decreased their gross exposure during the month by -3.4% to 194.1%, its 92nd percentile on a three-year basis. Net exposure decreased by -1.1% to 70.2%. The long / short ratio increased by +0.2% to 2.132, its 89th percentile on a three-year basis.

Asian Equity Hedged strategies generally produced positive performance in January. Those funds with more direct exposure to global semiconductor / memory sector tended to outperform. The Japanese market finished the month strong, despite some intra-month volatility in the early weeks. The market reacted favorably to the early snap general election. However, some uncertainty emerged as the market questioned the funding sources for some of the government policies and speculations on US / Japan coordinated Yen intervention. Markets in China were also strong during the month, especially the mid / small caps in domestic A-share market. It was a headline-light month as the US / China tension continued to ease as investors awaited further policy announcements from the upcoming ‘Two-sessions’. 

HFRI Equity Hedge Total Index:

Fixed income relative value strategies generally produced positive performance in January. The period did reflect a higher than normal dispersion across the space. The main drivers of performance included US basis and bond RV, European swap spreads and global cross currency basis. Results also featured gains from macro themes including USD and Ajapanes Yen trading and in the case of some more multi-strategy-oriented managers, exposure to equities and precious metals. Themes that detracted included long US swap spread exposure, paid Japan rates and European pension reform trades such as long-end swap steepeners and tenor basis.

Capital structure / volatility arbitrage strategies generally produced positive performance in January. January was marked by broad strength across AI-linked convertibles and persistent performance dispersion among sectors. The momentum in the beginning of the month was driven by defense, AI infrastructure, space / aerospace and Chinese ADRs. During the month, AI storage and computing convergence themes offset weakness in metals, digital assets-linked names, and select software issuers. Hedged convertible valuations generally improved during the month. Trading activity was exceptionally strong, with daily volumes well above historical averages and January setting a record, reflecting robust participation from both long-only and hedge fund investors. New issues were generally well received, especially in AI-linked names. US issuance slowed into the earnings but sentiment remained strong. IPO volumes rose back to 2019 levels but well short of 2020 to 2021 records. In the US, IPO activity in January 2026 was weaker than a year ago, but 2025 saw higher IPO deal counts than 2024, defying consensus expectations. VC investment remained robust, especially for deals below USD 1bn, which are trending flat to slightly positive compared to late 2025. In addition, there is a materially larger pipeline with ~50% of deals expected to be sponsor backed. Three mega IPOs including SpaceX, Anthropic and OpenAI anchor the calendar.

Merger arbitrage and event-driven strategies generated mixed performance in January. Spreads widened to start the month but stabilized. Median 0%–30% spreads tightened from 4.4% on January 2 to 3.0%–2.8% mid-month before widening back to 3.9% and ending the month unchanged. Median 0–50% spreads tightened from 4.5% to 4.0%–4.4% by month-end. Deal activity remained healthy, with 7 deals announced early in the month, followed by steady weekly volumes across successive weeks. Overall, the environment remained supportive for additional deal announcements, with spreads showing modest tightening into month-end and the opportunity set remaining broad and stable. Impactful deals included Toyota Industries / Toyota Motor, Frontier / Verizon, Warner Bros / Netflix, and Revolution Medicines / Merck.

Agency MBS strategies produced mixed performance in January. There was also dispersion in manager results, which was largely driven by differences in hedging and overlay positioning. Mortgage derivative investments were generally profitable as carry was positive and spreads were relatively stable for most sectors. Hedging and tactical relative value positioning had mixed results due to the tightening in the mortgage basis and recent policy announcements.

Quantitative equity strategies generated mixed to negative performance in January. During the month, US approaches were particularly challenged, while long / short and Asia-focused themes fared better. The period also featured headwinds from the factor space with both quality and low beta detracting. Fundamental models were also challenged, while technical models held up better. Overall, mid-frequency models were challenged across the board as crowded signals detracted. The second half of the month did experience a recovery as the factor backdrop stabilized and spiking equity volatility helped to reset trends. This created an improved landscape for short-term oriented models. From a factor perspective, medium term momentum, short concentration, and crowdedness momentum were among the largest alpha contributors to systematic long / short returns in January, which was partially offset by losses from asset selection and short crowdedness.

HFRI Reltive Value Total Index:

Corporate credit strategies generally produced positive returns in January. Traditional corporate long / short strategies produced positive performance. Long investments drove gains, while shorts generally detracted from performance. From an asset class perspective, allocations to European high yield, US investment grade, and US high yield contributed positively to performance. Additionally, tactical emerging market investments were also beneficial. The corporate long-biased sub-strategy generated a positive return in January. Most managers were up in January, although there were some modest losses that occurred due to credit-specific factors in the US. Gains were driven by long investments, which benefited from a combination of positive carry and capital appreciation. Managers produced gains from both high yield credit and equities.

Asset back strategies (ABS) generally produced positive returns in January. The vast majority of funds were positive during the month. Long investments were the key drivers of performance as carry was the primary source of gains. At the asset class level, RMBS, SRT, and short duration carry trades were the largest contributors. Conversely, CLO equity underperformed and produced negative results in most instances.

Reinsurance / ILS strategies generally produced positive performance in January. Results were mainly a function of 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. Spread widening was a function of the market anticipating the new issuance volume level exceeding that of maturing bonds during the first quarter. There were no material loss-producing events in January.

HFRI ED: Credit Arbitrage Index:

Discretionary trading strategies generally produced positive performance in January. It was a solid month for developed market themes where gains were achieved via equity thematics, notably in EU industrials / defense, energy / miners, AI, financials, and Japan. Foreign exchange was also profitable from short USD vs. AUD, EUR, JPY, NOK, GBP, as well as some Latam. Within commodities, metals exposure were also generally additive. More mixed results were experienced from interest rates positions across JPY payers and EU / UK receivers. US / EU steepeners mostly detracted, while in some cases, paid US and AUD were profitable. EM managers also generated positive performance. Results were driven by a mix of idiosyncratic carry trades in frontier markets, Venezuela / Latam credit and some of the emerging market receivers. Some gains were produced from developed market exposure, mostly in FX. Performance across development market interest rates were more mixed to negative. Equities were additive in select cases via a mix of semiconductors, commodity-related names and emerging market financials. Long precious metals positions were also additive to returns.

Systematic trading strategies generally produced positive performance in January. Traditional trend following CTAs produced gains mostly from long exposure to equities, precious metals, and short USD pairs, while shorts in natural gas and grains detracted. Programs with more diversified exposures also had a solid month, with a similar attribution picture, although agricultural exposure was accretive. Alternative trend followers fared equally well during the month, with gains in Chinese metals, emerging market equities and fixed income, outpacing losses from reversals in gas, power and carbon emissions.

Source: UGA - Hedge Funds, HFR. For illustrative purpose only. As of January 31, 2026. Historical performance indications and financial market scenarios are not reliable indicators of future performance.  

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