Alternative Strategies Split in 2025 as Risk-On Markets Reward Equity Exposure

2025 was a year of policy-driven markets, with sharp swings early on, then a powerful risk on second half as fiscal clarity emerged and the Federal Reserve resumed its rate cutting campaign. Against this backdrop, more equity-sensitive alternatives, such as long/short, did well into year end, while equity market neutral provided steadier returns through the year; with some managers providing significant alpha over their beta neutral risk profile. In the macro space, managed futures suffered a steep drawdown before stabilizing later in the year, and global macro saw discretionary managers outperform their systematic peers. Core bonds posted mid-single digit gains, offering ballast but lagging the best-performing alternative investment sub-strategies.

2025 Strategy Performance and Drivers

 Long/Short Equity

• HFRX Hedge Equity Index up 9.9% year to date.
• Strong performance, especially for higher beta strategies as equities rallied off April lows through year-end. Sub-strategies such as fundamental growth and technology led to the upside during the rebound.
• Pros: Potential to capture upside while hedging downside, to benefit from stock level dispersion, and flexible risk targeting.
• Cons: Equity beta may slowly increase during a rising market environment, while sharp risk-on phases can compress short alpha.

Equity Market Neutral

• HFRX Equity Market Neutral Index up 6.1% year to date.
• Steady returns throughout the year, with managers who employ multi-factor models performing especially well by capturing alpha in both the value and growth factor styles.
• Pros: Low correlation with equity and bond markets; risk dampener in multi-asset portfolios.
• Cons: Limited upside when markets trend strongly; manager/implementation skill critical (model drift, crowding).

Event-Driven

• HFRX Event Driven Index up 5.8% year to date.
• Steady performance throughout the year, with increasing levels of merger and acquisition activity, progress in trade negotiations, and a decline in volatility supporting deal flows.
• Pros: Low correlation to equities and bonds, with direct exposure to corporate transactions such as mergers and acquisitions, spin-offs, restructurings, and activism provide actionable situations with potential for outsized, deal-based returns
• Cons: Deal flow dependency, as a slowdown in corporate transactions can dampen performance. Execution and regulatory risk as deals may be delayed, renegotiated, or fail due to regulatory intervention, antitrust scrutiny, or financing issues

Managed Futures (Trend-Following / Commodity Trading Advisor (CTA))

• HFRX Macro: Systematic Diversified Index up 5.6% year to date.
• Historically steep drawdown during spring; with many funds down double digits and some experiencing their worst 12-month period in history.
• Stabilization and rebound by early fall, with significant support from long precious metals and long equity exposure.
• Pros: Potential for crisis alpha and historically strong rebounds after deep drawdowns.
• Cons: Whipsaw risk in rangebound regimes; can lag during fast risk on reversals; requires discipline to properly benefit from longer-term trends.

Global Macro (Discretionary and Systematic)

• HFRX Global Hedge Fund Index up 7.0% year to date.
• Differing performance profiles between discretionary and systematic strategies. Discretionary macro benefited from interest rate differentials, tactical risk-taking, and their ability to more quickly adjust exposure. Systematic strategies were negatively impacted by their more rigid models that did not adapt as quickly as their discretionary peers.
• Pros: Trades across interest rates, currencies, equities, and commodities, allowing for maximum diversification from traditional markets.
• Cons: Significant dispersion among managers and styles.

LPL Research View

2025 underscored the value and complexity of alternative investments in a rapidly evolving market environment. Against a backdrop of policy uncertainty, tariff shocks, and a late-year pivot toward monetary easing, performance across strategies was highly differentiated. Long/short equity emerged as a relative winner, benefiting from sector dispersion and the resurgence of growth themes. Global macro, particularly discretionary approaches, also delivered competitive returns by capitalizing on rate differentials and currency trends, while systematic macro strategies struggled with abrupt reversals. Market neutral fulfilled its role as a stabilizer, offering low correlation and volatility dampening, though a consistent return profile. However, managed futures faced one of its most challenging periods in recent history, as broken trends and whipsaw conditions eroded performance early in the year, despite performance stabilizing at the end of the year.

*Return figures are through December 26, 2025.

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Important Disclosures

This material is for general information only and is not intended to provide specific advice or recommendations for any individual. There is no assurance that the views or strategies discussed are suitable for all investors. To determine which investment(s) may be appropriate for you, please consult your financial professional prior to investing.

Investing involves risks including possible loss of principal. No investment strategy or risk management technique can guarantee return or eliminate risk.