HFRI Indices FAQ

HFRX Indices

HFRI Indices

HFR Indices Basic Methodology and FAQ

What characteristics differentiate the HFRI and HFRX Indices?

Category	HFRI Monthly Indices	HFRX Indices
Inception	January 1990	January 1998
Weighting	Equal-weighted	Varies by index (see matrix below)
Reporting Style	Net of all fees	Net of all fees
Performance Time Series Available	Monthly	Daily or Monthly
NAV's available	No	Yes
Index calculated	Three times per month	Daily and Monthly
Index performance finalized	Trailing four months of performance are subject to revision HFRI Monthly Indices Update Schedule	Performance finalized at month-end HFRX Monthly Indices Update Schedule
Index rebalanced	Monthly	Quarterly
Criteria for fund inclusion	Listing in HFR Database; Reports monthly net of all fees monthly performance and assets in USD	In addition to meeting HFRI criteria, fund must be open to new transparent investment and meet track record and minimum asset size requirements as listed below
Minimum Asset Size and/or Track Record for fund inclusion	$50 Million minimum or > 12-Month Track Record	$50 Million and 24-Month Track Record (typical)
Index Denomination	USD; some hedged to GBP, JPY, CHF & EUR	USD; some hedged to GBP, JPY, CHF & EUR
Investable Index	No	HFR Asset Management, LLC constructs investable products that track HFRX
Constituents Details	Available to HFR Database subscribers	Available to HFR Database subscribers
Number of Constituent Funds	Over 2000 in HFRI Fund Weighted Composite; over 800 in HFRI Fund of Funds Composite	Over 250 in total constituent universe
Historical Performance	Published on HFR website and through various market data services
Historical Performance	Performance Table Excel download	Performance Table Excel download

Describe the HFRX Indices methodology and construction

The HFRX Indices ("HFRX") are a series of benchmarks of hedge fund industry performance which are engineered to achieve representative performance of a larger universe of hedge fund strategies. Hedge Fund Research, Inc. ("HFR, Inc.") employs the HFRX Methodology (UCITSIII compliant), a proprietary and highly quantitative process by which hedge funds are selected as constituents for the HFRX Indices. This methodology includes robust classification, cluster analysis, correlation analysis, advanced optimization and Monte Carlo simulations. More specifically, the HFRX Methodology defines certain qualitative characteristics, such as: whether the fund is open to transparent fund investment and the satisfaction of the index manager's due diligence requirements. Production of the HFRX Methodology results in a model output which selects funds that, when aggregated and weighted, have the highest statistical likelihood of producing a return series that is most representative of the reference universe of strategies.

Constituents of HFRX Indices are selected and weighted by the complex and robust process described above. The model output constitutes a sub-set of strategies which are representative of a larger universe of hedge fund strategies, geographic constituencies or groupings of funds maintaining certain specific characteristics.

In order to be considered for inclusion in the HFRX Indices, a hedge fund must be currently open to new transparent investment, maintain a minimum asset size (typically $50 Million) and meet the duration requirement (generally, a 24 month track record). These criteria may vary slightly by index.

HFR screens approximately 7,000 hedge funds to identify those firms with at least $50 million AUM and a minimum two-year track record that are also willing to trade on a transparent basis and are open to new assets
Cluster and correlation analyses are performed to group managers by true strategy categories and to eliminate outliers
Monte Carlo Simulation helps determine the adequate number and types of managers to replicate each strategy
Selected managers must provide transparency and pass extensive qualitative screening
Manager investments are then weighted to maximize correlation with their group

HFRX Methodology Whitepaper

HFRX Indices - Construction and Methodology

Describe the HFRI Monthly Indices methodology and construction

The HFRI Monthly Indices ("HFRI") are a series of benchmarks designed to reflect hedge fund industry performance by constructing equally weighted composites of constituent funds, as reported by the hedge fund managers listed within HFR Database. The HFRI range in breadth from the industry-level view of the HFRI Fund Weighted Composite Index, which encompasses over 2000 funds, to the increasingly specific-level of the sub-strategy classifications.

In order to be considered for inclusion in the HFRI, a hedge fund manager must submit a complete set of information to HFR Database (the listing of required fields for Database inclusion are available here). Funds are eligible for inclusion in the HFRI the month after their addition to HFR Database. For instance, a fund that is added to HFR Database in June is eligible for inclusion in the indices upon reporting their July performance. Additionally, all HFRI constituents are required to report monthly, net of all fees performance and assets under management U.S. dollars. Constituent funds must have either (a) $50 million under management or (b) a track record of greater than twelve (12) months.

The HFRI are fund-weighted (equal-weighted) indices. Unlike asset-weighting, the equal-weighting of indices presents a more general picture of performance of the hedge fund industry. Any bias towards the larger funds potentially created by alternative weightings is greatly reduced, especially for strategies that encompass a small number of funds.

Funds included in the HFRI Monthly Indices must:

Report monthly returns
Report Net of All Fees Returns
Report assets in USD
Have at least $50 Million under management or have been actively trading for at least twelve (12) months

Indices Notes:

All HFRI Indices are fund weighted (equal weighted).
Funds are eligible for inclusion in the HFRI Indices a month after their addition to HFR Database. For instance, a fund that is added to HFR Database in June is eligible for HFRI inclusion starting with July performance
The HFRI are updated three times a month: Flash Update (5th business day of the month), Mid Update (15th of the month), and End Update (1st business day of following month)

HFRI Monthly Indices Update Schedule
The current month and the prior three months are left as estimates and are subject to change. All performance prior to that is locked and is no longer subject to change.
If a fund liquidates/closes, that fund's performance will be included in the HFRI as of that fund's last reported performance update.
The HFRI Fund of Funds Index is not included in the HFRI Fund Weighted Composite Index.
Both domestic and offshore funds are included in the HFRI.
In cases where a manager lists mirrored-performance funds, only the fund with the larger asset size is included in the HFRI.

Do the HFRI Monthly Indices include funds running sidepockets?

The HFRI Indices are calculated using net of all fees fund performance as reported to HFR Database, which may or may not include side pocket investments, subject to the below. In situations where different investors can experience different returns on the basis of truly different portfolio holdings & exposures (as opposed to differences in high water marks), we ask funds to report the return experience most closely approximating that of the collective (or most common) experience of investors; if possible, a blended performance which asset weights the different return series (with and without sidepocket) is most useful. Reporting conventions specific to a fund are also typically outlined in offering material. Alternatively, if the side pocket creates or is likely to create meaningful difference in returns for investors, we recommend the creation of distinct, multiple records within the Database (one set of performance without side pocket, one set with side pocket); for the purpose of index inclusion, we would only select the more representative performance. In situations where managers report performance inclusive of side pockets, our guidance would be to do so only in situations in which the side pockets were made available to all investors, current and historical, and where the side pockets were priced and reported monthly.

Are either of the HFRI or HFRX Indices investable?

HFRI: The HFRI Indices are equally weighted performance composites and are not investable through Hedge Fund Research, Inc. or any affiliated companies.

HFRX: The HFRX Indices are not investable through Hedge Fund Research but are investable through Tracker Funds which are constructed by HFR Asset Management, LLC, a registered investment adviser and asset management company. Performance data on the investable products is only available through HFR Asset Management, LLC. Performance data available through Hedge Fund Research, Inc. is a model output and not the performance of the investable products.

How do I obtain a list of constituents for the HFRI and HFRX Indices?

The constituent funds of the HFRI Monthly Indices are currently available within the subscription-based HFR Database. Information on the underlying constituents of the HFRX Indices is currently available to investors of the HFRX Tracker products as well as HFR Database subscribers.

How do I subscribe to the HFR Database?

Contact HFR at 312-658-0955 or database@hfr.com.

Click here to learn more about HFR Database

Click here to learn more about HFR FOF Database & Directory

How often is index performance updated?

HFRI: Three-times-per-month: (1) The "Flash" update is published on the fifth business day of the month; (2) The "mid-month" update is published on 15th of the month (or nearest business day); and (3) the "month-end" update is published on the first business day of the following month. Additionally, the trailing four months of performance are subject to revision as HFR receives updates from lagged funds.

HFRI Monthly Indices Update Schedule

HFRX: Daily performance is available for some, but not all, HFRX Indices. The update frequency of HFRX Index performance can vary by index but all HFRX Indices provide monthly performance returns. HFRX Indices that report on a monthly interval only will be updated on the 1st and the 15th of each month (or nearest business day afterward). When a new month's performance is posted on the 15th (the Mid-Update) - the performance will posted as an estimate. The Indices performance will then be finalized on the 1st of the following month (the End update). HFRX Indices that report on a daily interval will be updated in the monthly feeds as soon as their month-end performance is finalized. It typically takes 2 to 3 business days after month-end to finalize the performance of a daily index. The updated monthly returns will be posted as soon as the values are available.

HFRX Monthly Indices Update Schedule

How often are funds added to the indices?

HFRI: Funds are added to the HFRI on a regular basis as HFR identifies candidates for inclusion.

HFRX: Funds are typically added to the HFRX on a quarterly basis as a result of the HFRX Methodology model.

Fund Managers click here to join HFR Database

When is a fund removed from the HFRI or HFRX Indices and how is survivorship bias taken into consideration?

A fund will be removed from an Index when:

It liquidates, or
The fund manager requests removal from the Database, or
It fails to satisfy the requirements for constituency (as outlined in Methodology section above)

However, a fund's past performance will always remain in its respective index up until the point of liquidation or manager-requested removal from HFR Database. In an effort to limit survivorship bias, HFR exhausts all efforts to receive a fund's performance until the point of final liquidation. This convention provides the most robust characterization of results possible.

Likewise, when a new fund is added to either Index, the historical performance of the new constituent fund will not affect the finalized historical performance of either index. And while the HFRX are finalized upon the date reported, the HFRI are subject to revisions for the trailing four months, although index results are unlikely to be meaningfully impacted by submissions later than 30 days from the end of the performance month. If a non-liquidated fund does not report to HFR Database for three consecutive months, the fund is subject to removal from the HFRI.

Is it possible for a fund to be a constituent of multiple indices?

HFRI: Constituent funds are included in only one substrategy-level index; however, all single-manager constituents are included in the HFRI Fund Weighted Composite and all fund of funds are included in the HFRI Fund of Funds Composite Index.

HFRX: Constituent funds are included in only one strategy-level index; however, most constituents are also included in the HFRX Global and HFRX Equal-Weighted composite indices.

HFRI Strategy Definitions

HFRX Strategy Definitions

What are the limitations on references to and distribution of HFRI and HFRX Index data?

The HFRI and HFRX are both produced as benchmarks of hedge fund industry performance and are intended to be utilized as points of reference for relevant hedge fund products. Specific guidelines are available in the HFR Terms of Use Agreement.

Usage or distribution of the HFRI or the HFRX in a commercial format, for public distribution, or for inclusion in products (as a component of a commercially distributed research report, project or textbook) can only be made available with specific authorization from Hedge Fund Research, Inc. Please direct inquiries to info@hfr.com or call 312-658-0955.

Does a commercial arrangement exist between HFR and the hedge fund managers which report performance of their funds?

Reporting results to HFR Database is voluntary and managers are not compensated financially for their inclusion. Likewise, managers submit their fund and firm information to HFR Database and become visible to HFR Database subscribers at no charge.

How does HFR determine the constituents of the HFRX Diversity Index?

In addition to meeting the basic HFRX Indices construction criteria, the fund must also be minority-owned.

How are the HFRX FX-Hedged Indices calculated?

The values for the HFRX EUR, JPY, CHF and GBP FX Indices are calculated by applying to the USD index value the cost of a rolling monthly foreign exchange contract on the relevant currency.

Are submissions of performance results audited?

HFR makes every effort to ensure performance results are accurate and comply with reporting requirements. Although not required, many hedge fund managers voluntarily provide HFR with fund offering documents and audited financial statements as a testament to their integrity. Internal procedures that identify and correct infrequent data errors are utilized. Hedge fund managers are solely responsible for reporting accurate and timely information to HFR. Since participation in HFR Database is voluntary, as well as for practical reasons, HFR does not perform an independent financial audit of the funds contained in HFR Database.

For questions concerning the HFRI or HFRX Indices please e-mail: info@hfr.com

HFRX Indices Weighting Matrix
HFRX Index	Ticker	Index Weighting
HFRX Absolute Return Index	HFRXAR	Representative Optimization
HFRX Active Trading Index	HFRXTRAD	Representative Optimization
HFRX Activist Index	HFRXACT	Representative Optimization
HFRX Aggregate Index	HFRXAGGR	Equal-Weighted
HFRX Alternative Energy Index	HFRXALTE	Representative Optimization
HFRX Asia Composite Hedge Fund Index	HFRXASC	Asset-Weighted
HFRX Asia Equally Weighted Index	HFRXAEW	Equal-Weighted
HFRX Asia ex-Japan Index	HFRXAXJ	Representative Optimization
HFRX Asia with Japan Index	HFRXAWJ	Representative Optimization
HFRX Brazil Index	HFRXBRZL	Representative Optimization
HFRX BRIC Index	HFRXBRIC	Representative Optimization
HFRX China Index	HFRXCHN	Representative Optimization
HFRX Commodity Index	HFRXCOM	Representative Optimization
HFRX Commodity: Agriculture Index	HFRXAGRI	Representative Optimization
HFRX Commodity: Energy Index	HFRXENEG	Representative Optimization
HFRX Commodity: Metals Index	HFRXMETL	Representative Optimization
HFRX Convertible Arbitrage Index	HFRXCA	Representative Optimization
HFRX Credit Arbitrage Index	HFRXCRED	Representative Optimization
HFRX Currency Index	HFRXCUR	Representative Optimization
HFRX Discretionary Thematic Index	HFRXDT	Representative Optimization
HFRX Distressed Securities Index	HFRXDS	Representative Optimization
HFRX Diversity Index	HFRXDVRS	Representative Optimization
HFRX ED: Multi-Strategy Index	HFRXEDMS	Representative Optimization
HFRX EH: Multi-Strategy Index	HFRXEHMS	Representative Optimization
HFRX Energy Infrastructure Index	HFRXEINF	Representative Optimization
HFRX Energy/Basic Materials Index	HFRXEBM	Representative Optimization
HFRX Equal Weighted Strategies CHF Index	HFRXEWC	Equal-Weighted
HFRX Equal Weighted Strategies EUR Index	HFRXEWE	Equal-Weighted
HFRX Equal Weighted Strategies GBP Index	HFRXEWG	Equal-Weighted
HFRX Equal Weighted Strategies Index	HFRXEW	Equal-Weighted
HFRX Equal Weighted Strategies JPY Index	HFRXEWJ	Equal-Weighted
HFRX Equity Hedge Index	HFRXEH	Representative Optimization
HFRX Equity Market Neutral Index	HFRXEMN	Representative Optimization
HFRX Event Driven Index	HFRXED	Representative Optimization
HFRX Fixed Income-Asset Backed Index	HFRXFAB	Representative Optimization
HFRX Fixed Income-Corporate Index	HFRXFCO	Representative Optimization
HFRX Fixed Income-Sovereign Index	HFRXFSV	Representative Optimization
HFRX Fundamental Growth Index	HFRXEHG	Representative Optimization
HFRX Fundamental Value Index	HFRXEHV	Representative Optimization
HFRX Global Hedge Fund CHF Index	HFRXGLC	Asset-Weighted
HFRX Global Hedge Fund EUR Index	HFRXGLE	Asset-Weighted
HFRX Global Hedge Fund GBP Index	HFRXGLG	Asset-Weighted
HFRX Global Hedge Fund Index	HFRXGL	Asset-Weighted
HFRX Global Hedge Fund JPY Index	HFRXGLJ	Asset-Weighted
HFRX India Index	HFRXIND	Representative Optimization
HFRX Japan Index	HFRXAJP	Representative Optimization
HFRX Latin America Index	HFRXLA	Representative Optimization
HFRX Macro Index	HFRXM	Representative Optimization
HFRX Macro: Multi-Strategy Index	HFRXMMS	Representative Optimization
HFRX Market Directional Index	HFRXMD	Representative Optimization
HFRX MENA Index	HFRXMENA	Representative Optimization
HFRX Merger Arbitrage Index	HFRXMA	Representative Optimization
HFRX Multi-Emerging Markets Index	HFRXMEM	Representative Optimization
HFRX Multi-Region Index	HFRXMREG	Representative Optimization
HFRX North America Index	HFRXNA	Representative Optimization
HFRX Northern Europe Index	HFRXNE	Representative Optimization
HFRX Private Issue/Regulation D Index	HFRXREGD	Representative Optimization
HFRX Quantitative Directional Index	HFRXQD	Representative Optimization
HFRX Real Estate Index	HFRXREAL	Representative Optimization
HFRX Relative Value Arbitrage Index	HFRXRVA	Representative Optimization
HFRX Russia Index	HFRXRUS	Representative Optimization
HFRX Russia/Eastern Europe Index	HFRXEE	Representative Optimization
HFRX RVA: Multi-Strategy Index	HFRXRVMS	Representative Optimization
HFRX Short Bias Index	HFRXSB	Representative Optimization
HFRX Special Situations Index	HFRXSS	Representative Optimization
HFRX Systematic Diversified Index	HFRXSDV	Representative Optimization
HFRX Technology/Healthcare Index	HFRXTH	Representative Optimization
HFRX Total Emerging Market Index	HFRXTEM	Equal-Weighted
HFRX Volatility Index	HFRXVOL	Representative Optimization
HFRX Western/Pan Europe Index	HFRXWE	Representative Optimization
HFRX Yield Alternative Index	HFRXYA	Representative Optimization

Disclaimer: Information contained herein is subject to change at any time without notice.

For questions concerning the HFRX Indices please e-mail: info@hfr.com

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