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Market context

Global markets delivered mixed to positive performance in February, supported by stronger Asian and European equities despite mixed US index returns, heightened Middle East tensions, rising energy prices and continued sector rotation amid increased market volatility. US equities: Dow Jones +0.17%, S&P 500 -0.87%, NASDAQ -3.38%. Europe: MSCI Europe +3.92%, FTSE +5.09%, and DAX +0.82%. Asia: Nikkei 225 +10.37%. Emerging Markets: Brazil +4.09%, China +1.09%, India ‑3.42%. Rates/credit: US 2Y at 3.38% (from 3.52%) and the US 10Y at 3.94% (from 4.24%). Barclays US IG +0.19% and HY +0.51%. Commodities/FX: Gold +20%; oil +17.4%. The euro fell -0.30% (1.1854 → 1.1818), while the USD rose 1.21% versus the JPY (154.22 → 156.08).

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

Hedge fund highlights

Equity Hedge: February performance was broadly positive, led by value rotation and stock‑level dispersion. US gains came from energy and materials. Europe benefited from beta despite long‑alpha headwinds. Chinese markets were mixed, with domestic shares outperforming, while Hong Kong lagged due to weak technology stocks. Asia outperformed on AI and semiconductor strength.

Relative Value / Event Driven: Performance was mixed but modestly positive. Fixed income RV benefited from swap spreads and macro themes, while volatility and capital structure trades rebounded on strong convertible issuance. Merger arbitrage was stable, agency MBS positive, and quant equity challenged.

Credit / Income: Credit strategies were positive in February, driven by short gains amid wider spreads and idiosyncratic catalysts. Asset-backed securities was supported by RMBS and SRT carry, while CLO‑heavy portfolios lagged. Reinsurance benefited from coupon income and mark‑to‑market gains.

Trading / Macro: February performance was positive, led by gains in developed‑market rates, equities and metals. FX results were mixed, while losses in emissions and natural gas were partly offset by emerging‑market rates and carry.
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Key takeaways for allocators

Regional divergence continues: February reinforced equity outperformance in Europe and Asia versus the US, with Japan benefiting from policy stability and strong sector momentum.

Geopolitics driving asset rotation: Rising Middle East tensions lifted energy and gold, increasing volatility and favoring tangible asset sectors such as energy, utilities and materials.

Rates rally supports defensive carry: Falling US Treasury yields supported investment‑grade credit, Agency MBS and duration‑sensitive strategies, with carry remaining a key return driver.

Equity alpha highly selective: Growth‑to‑value rotation and stock‑level dispersion benefited energy and industrials, while technology, software and quality factors lagged.

Alternatives enhance diversification: Relative value, merger arbitrage and credit long/short strategies delivered stable performance amid macro uncertainty.

Performance snapshot

Overall market commentary

Risk assets produced mixed to positive performance in February. Outperformance in Asian and European equities relative to the US remained a theme that carried over from last year. February was marked by escalating tensions across the Middle East, which sparked a rally across the energy complex, increased market volatility, as well as further equity sector rotations. The Dow Jones, S&P and NASDAQ posted mixed performance. The Dow Jones posted a marginal gain of 0.17%, while the S&P and NASDAQ generated losses of -0.87% and -3.38%, respectively. The European indices generated positive performance with the MSCI Europe, DAX and FTSE producing gains of 3.92%, 0.82% and 5.09%, respectively. Asian developed markets again produced strongly positive results with the Nikkei 225 generating a gain of 10.37%, extending the early year rally. Emerging market indices produced mixed performance in February. Brazilian and Chinese markets rallied 4.09% and 1.09%, respectively, while the Indian market declined by -3.42%. US interest rate markets were stronger given the uncertainty around US equities and some safe haven positioning. The two-year US Treasury yield moved lower to 3.38% from 3.48%, while the ten-year US Treasury yield decreased to 3.94% from 4.24%. The Barclays US Corporate Investment Grade Index rose 1.29%, mostly in line with the US Treasury rally, while the Barclays US Corporate High Yield Index gained 0.19%. Commodity prices were stronger again in February with gold rising 20%, while oil also rallied 17.4% on escalating tensions between the US and Iran. In currency markets, the Euro fell -0.30% to 1.1818 from 1.1854, while the US dollar rose 1.21% against the Japanese Yen from 154.22 to 156.08

Source: UGA - Hedge Funds, Bloomberg, Barclays (Lehman) Live, HFR. As of February 28, 2026. Historical performance indications and financial market scenarios are not reliable indicators of future performance.

US Equity Hedged strategies generally produced positive performance in February. Despite uneven performance across risk assets, the equity environment favored smaller‑capitalization and ‘old economy’ sectors. While index level volatility was relatively muted, individual stock volatility remained elevated with numerous day-to-day rotations among sectors and factors. From a factor perspective, the broad shift from growth to value remained intact, providing a positive tone to momentum. Quality continued to underperform, while realized volatility was also pressured as more of a risk-off sentiment took hold. ‘Tangible asset’ sectors such as utilities, energy and materials were the primary outperformers, while technology, financials and consumer discretionary lagged amid concerns surrounding AI’s impact on software, the labor market and private credit. Alpha at the industry level appeared to be mixed with slightly negative long alpha offset by slightly positive short alpha. Energy-focused managers as a group featured the strongest value-add during the month, while financials managers and platforms were the laggards.

European Equity Hedged strategies generally produced positive performance in February. Manager results were driven primarily by beta exposure but partially offset by alpha losses. Negative alpha was largely a function of long portfolios. Losses were incurred from TMT, size exposure and crowded longs, which were partially offset by gains from industrials, UK and France exposure. European-focused managers generally outperformed US-focused managers, although lagged Asia-focused managers. Across the industry, European fundamental managers decreased their gross exposure through the month by -4.3% to 189.8%, its 81st percentile on a three-year basis. Net exposure decreased by -4.3% to 65.8%.

Asian Equity Hedged strategies generally produced positive performance in February. Those funds with more direct exposure to the global semiconductor / memory sector generally outperformed. The Japanese market finished the month positively on the back of a landslide victory in the lower house election by the LDP with the market expecting a longer-term administration and better support from the government to push for more growth-oriented policies. At the sector level, AI / semiconductor, defense and energy-related remained in favor of investors, while software sector was under pressure over potential AI disruptions. Chinese markets were more mixed with domestic A-shares outperforming the HK market. The main challenge for the HK market was the technology sector. Conversely, AI infrastructure related sectors continued to demonstrate strong momentum.

HFRI Equity Hedge Total Index:

Fixed income relative value strategies generally produced positive performance in February. Overall, performance was somewhat muted as the landscape for micro RV and cash / futures basis trading was quiet. Macro RV was mixed as gains were generated from swap spread themes, while the European yield curve and tenor basis trades, related to the pension reform theme, were challenged for the second month in a row. Additionally, inflation trading produced mixed results. Managers who outperformed were those focused on more macro / multi-strategy themes, with additional gains generated from macro directional exposure to FX, equities and commodities.

Capital structure / volatility arbitrage strategies generated mixed performance in February. During the month, the weakest parts of the market were software and AI computing names, although overall credit stress and spread widening remained contained while liquidity and the primary market remained supportive. From early to mid-February, the convertible sector rebounded, supported by AI computing convergence outperformance, earnings driven by single name catalysts and credit. This dynamic gave way to weakening momentum as rates repricing, persistent software weakness and tensions around the Middle East weighed on risk assets. Global convertible bond new supply volumes totaled USD 22.7bn, nearly 3 times the monthly average for February. A sizable portion of the volumes were concentrated in a handful of large deals, including Oracle and Yen 600bn (USD 3.8bn) offering from Nippon Steel, the largest new CB from a Japanese issuer on record.

Merger arbitrage and event-driven strategies generated flat to positive performance in February. Annualized spreads were broadly stable throughout the month. Average annualized spreads (0-30%) ended the month at 6.7%, up only slightly from 6.6% at the beginning of the month. The average breakeven probability across the universe was 89%, while the median breakeven probability stood at 95%. A number of larger deals closed, including Thoma Bravo’s USD 12.3bn acquisition of Dayforce; Avidity’s USD 12bn sale to Novartis; Palo Alto Network’s USD 25bn deal for Cyberark and the buyout of Toyota Industries by Toyota Motor Corp and Toyota Group affiliates. New supply remained robust at USD 133bn of announced transactions, led by Devon Energy and Coterra’s merger. Technology deals remained active as Texas Instruments acquired Silicon Labs for USD 7.2bn, and cross-border activity rose with Spain’s Santander Bank offering USD 12bn for Webster.

Agency MBS strategies generated positive performance in February. All funds were positive during the month and benefited from long investments in agency mortgage derivatives. Profits were primarily driven by carry as OAS levels were stable with prepayment speeds were generally in line with expectations. In addition, managers with long duration and tactical agency MBS positions also performed well.

Quantitative equity strategies generated negative performance in February. There was headwind from the factor space with Quality and Sentiment both detracting, nonetheless we saw even a meaningful improvement in the last week of the month, especially amidst factor-oriented managers with longer holding period faring relatively well. Fundamental models outperformed, while technical models struggled. Overall, mid-frequency models were the most challenged as all crowded signals tended to detract. From a factor perspective, Medium-Term Momentum, Long Crowdedness, Crowdedness Momentum, and Short Concentration were among the largest alpha contributors to Systematic L/S returns in February, which were partially offset by losses from Staples, Size, and Short Crowdedness.��

HFRI Relative Value Total Index:

Corporate credit strategies generally produced positive performance in February. Traditional corporate long / short strategies produced positive performance. Managers generated positive returns as they capitalized on the increase in dispersion. For most managers, shorts were the top returning segment of the portfolios as funds benefited from the widening in credit spreads. In addition, several managers produced gains on the long side due to company-specific catalysts. The corporate long-biased sub-strategy was generally weaker in February due to spreads widening, which challenged the long-biased profiles. In particular, managers with larger allocations to loans and software underperformed. Outperformance was largely due to idiosyncratic factors.

Asset back strategies (ABS) generally produced relatively flat returns in February. The period also featured fairly significant dispersion across manager results. At the fund level, most managers were actually positive in February. Profits were primarily driven by long investments and interest income. In particular, the managers who outperformed were generally concentrated in the RMBS and SRT sectors. However, funds with higher concentration in CLOs underperformed as those assets were marked down materially during the month in response to the price declines observed in the syndicated loan market.

Reinsurance / ILS strategies generally produced positive performance in February. Performance was mainly a function of coupon income that was partially offset by widening spreads for the cat bond manager. The collateralized reinsurance manager had a very strong month due to a material mark-to-market adjustment on a contract that was completely written down as a result of the January 2025 California wildfires.��It was determined early this month that the attachment point on this contract was not breached and as such, no payout to the counterparty was required.

HFRI ED: Credit Arbitrage Index:

Discretionary trading strategies generally produced positive performance in February. Developed market managers were generally accretive on the month, albeit with notable dispersion. Developed market interest rates rallied, benefiting UK and EU receiver positions, while curve steepeners struggled as G4 curves experienced a bull-flattening. Japanese flatteners added to results, while directional payer positions detracted, particularly in Sweden and the US. In FX, the USD index was marginally stronger, though performance was mixed across G10 and emerging market currencies. Equities themes proved uneven, with softness in AI and technology offset by gains in thematic long positions across European defense, infrastructure, materials and miners, alongside regional exposure to the Nikkei and Kospi. In the commodity complex, while discretionary risk was reduced, losses were incurred in UK and EU emissions that were partly offset by gains in precious and base metals. Across emerging market managers, most funds outperformed, with similar attributions from developed market rates alongside a broader rally in emerging market rates supporting receiver positions. Across frontier markets, carry delivered another strong month, complemented by FX gains in NGN and Zambian exposures.

Systematic trading strategies generally produced positive performance in February. The top performing managers demonstrated the highest realized volatility and beta to equities. Long equity positions were the primary driver of gains, followed by commodities and FX, with fixed income themes more muted. More trend-heavy implementations were positive on the back of long EU equity indices and shorts in natural gas and cocoa. More diversified implementations slightly outperformed. Alternative trend followers had more muted results. Overall, funds benefited from equity exposures, while commodities trading proved more challenging for the space given losses due to price reversals across the European energy complex.

Source: UGA - Hedge Funds, HFR. For illustrative purpose only. As of February 28, 2026. Historical performance indications and financial market scenarios are not reliable indicators of future performance.��

HFRI Macro Total Index:

This document document has been prepared by UBS SA���ʴ�ı (Americas) LLC, acting through Unified Global Alternatives - Hedge Funds (“UGA - Hedge Funds” or “UGA - HF”), a provider of hedge fund strategies. It contains UGA - Hedge Funds' view of market events during the specified period and all such information and opinions are subject to change without notice, and does not pertain specifically to products managed or advised by UGA - Hedge Funds. The materials are provided for information purposes only and do not constitute investment advice. The information contained herein is believed to be reliable but its accuracy is not guaranteed. This publication encompasses UGA - Hedge Funds’ views based on our internal manager universe and are subject to change. The universe includes managers that are either invested in or followed by UGA - Hedge Funds and does not represent all hedge fund managers and strategies available in the industry. Any indices shown throughout this report are for illustrative purposes only and not a representation of UGA - Hedge Funds universe performance.

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