Hedge Fund Research Inc., a Chicago hedge fund data provider, has started the first index designed to track the volatility sector of the hedge fund universe.

The HFRX Volatility Index, introduced Wednesday, is designed to track the performance of the subset of hedge fund managers who trade volatility as an asset class. The firm did not say how many funds would be included in the index.

Volatility strategies, typically a subset of relative value arbitrage, can employ arbitrage, directional, market neutral, or a mix of these strategies. They include exposures which can be long, short, market neutral, or variable to the direction of implied volatility, and they may cover both listed and unlisted funds.

The number of hedge funds pursuing volatility strategies has been growing over the last several years, according to Hedge Fund Research, despite the steady decline in implied market volatility over that period.

Hedge fund capital dedicated to volatility strategies has grown more than 150% over the last three years, including 65% last year, the firm said. Firms which trade volatility as an asset class manage over $89 billion of capital.

The HFRX Volatility Index provides a way for investors to participate in this segment of the market, offering a benchmark for the asset class, Hedge Fund Research said.

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