Dispersion reigns as macro managers and CTAs advance while equity hedge funds collapse

Mixed performance

Dispersion reigned among different hedge fund strategies during a turbulent March, with global macro and trend-following funds posting positive returns while equity-focused managers tumbled sharply. A deepening of Covid-19 fears across the global economy sparked unprecedented losses in markets and dramatically reversed last year’s buoyant risk-on environment.

Hedge Fund Research data for March shows that while managed futures strategies were able to lock onto emerging trends amid the volatility, hedge funds that trade equity markets were caught out by the rapid deterioration in sentiment, driving hefty losses among most stock-pickers.

Macro and trend-followers are now tipped to continue to gather pace as volatility underpins the market outlook.

The HFRI Macro (Total) Index posted a 2.1 per cent monthly gain – a solid showing powered by significant gains from quantitative, trend-following macro CTA strategies. The index is now up 1.9 per cent for the year. Systematic macro hedge funds also did well, with the HFRI Macro: Systematic Diversified Index rising 2.9 per cent in March, and up 2.07 per cent for the year.

CTAs’ recent good performance has been driven by successful long and short bets across fixed income, equity, currencies, metals, and energy commodities.  Discretionary commodity and currency-focused macro strategies were also solid performers, with the HFRI Macro: Commodity Index returning 3.1 per cent, and the HFRI Macro: Currency Index adding 2.9 per cent.

Among the month’s best performers were Brevan Howard Asset Management's long-running macro flagship strategy, which climbed 18 per cent in March, pushing its first quarter return to some 23 per cent. Meanwhile, Pierre Andurand’s well-known commodities-focused hedge fund has reportedly gained 53.1 per cent in the first three months of the year, fueled by an eye-catching 63 per cent March return after the renowned oil trader started heavily shorting the commodity as the Coronavirus pandemic took hold.

On the flipside, Bridgewater Associates, the world’s largest hedge fund firm led by industry veteran Ray Dalio, saw its flagship macro Pure Alpha II strategy – which trades bonds, currencies, stock indexes and commodities - lose 16 per cent in March, according to media reports, leaving it down more than 20 per cent in Q1.

Kenneth Heinz, HFR president, said macro and trend-following strategies are likely to continue to lead industry performance, with their models evolving to “effectively capture dynamic, fluid and shifting trends as the pandemic progresses.”

Elsewhere, equity-focused hedge funds suffered during March’s sustained upheaval, with all strategy types in this sector finishing March in the red. The HFRI Equity Hedge Fund (Total) Index shed 9.46 per cent in March, and has now fallen more than 13 per cent since the start of 2020.  Fundamental value-focused strategies lost 12.39 per cent in March, equity market neutral funds dropped 2.28 per cent, and multi-strategy vehicles gave back 7.21 per cent in a torrid month.

Commenting on the numbers, Heinz said the performance dispersion across strategies underlines the importance of maintaining a diversified alternatives portfolio.

“Financial markets experienced a historic spike in volatility in March as the spreading coronavirus pandemic drove steep losses across global equities and energy commodities, as well as an indiscriminate flight to quality across fixed income and currencies.

“Uncorrelated, defensively and long volatility-positioned hedge fund strategies posted impressive, negatively-corelated gains for the month, while directional equity-sensitive, long-biased, and arbitrage strategies posted sharp declines.”