Hedge funds mount fightback with “historic gains” in April

Returns

Hedge funds staged a fightback in April following a torrid first quarter for the industry, recording their biggest monthly gain since the 2008 global financial crisis, with strategies of various stripes successfully trading the recent stock market rebound and heightened oil market volatility.

New Hedge Fund Research data shows equity hedge, event driven, energy and basic materials, and activist-focused hedge fund strategies drove gains across the sector last month.

Looking ahead, the continuing volatility and uncertain macroeconomic backdrop now offers “dynamic opportunities” for hedge fund outperformance in 2020, HFR said.

The HFRI Fund Weighted Composite Index - a global equal-weighted index tracking the performance of more than 1,400 single-manager funds – gained 4.79 per cent on average in April. The return was the index’s first positive gain of 2020, and the index’s biggest monthly rise since the 5.15 per cent gain in May 2009, during the immediate aftermath of the 2008 crash.

The HFRI Equity Hedge Index climbed 6.78 per cent last month overall, with fundamental growth strategies (8.02 per cent), fundamental value (7.25 per cent) and multi-strategy hedge funds (7.06 per cent) all fuelling the surge, with quantitative directional vehicles up 4.90 per cent.

HFRI’s Macro index added 1.27 per cent, with multi-strategy funds (up 3.38 per cent) and discretionary thematic strategies (2.95 per cent) up. Among the strongest macro performers in 2020 has been Louis Bacon’s high-profile macro strategy Moore Capital, reportedly up some 17 per cent since the start of the year.

Energy/basic materials-focused equity strategies seized on last month’s unprecedented oil shock and posted an eye-catching 14.53 per cent April gain. Healthcare-focused equity hedge funds meanwhile added 7.25 per cent, with Stockholm-based Rhenman Healthcare, one of the best-known healthcare-focused long/short equity hedge funds, among the best-performers, rising 17 per cent.

Elsewhere, activist strategies gained more than 10 per cent last month, while special situations funds added more than 9 per cent.

However, hedge funds remain in negative territory so far in 2020, following a torrid first quarter for the industry.

Despite its 4.79 per cent April rise, the HFRI Fund Weighted Composite Index is still down 6.56 per cent over the four-month period since the start of January. Equities have lost more than 8 per cent so far this year, event driven has fallen more than 9 per cent, macro is negative 0.10 per cent and relative value strategies, up 3.17 per cent in April, remain 6.42 per cent in the red year-to-date.

“Hedge funds posted historic gains in April, propelled by event driven and equity hedge strategies as equity and credit markets recovered from late March lows, while credit and M&A deal spreads contracted from the extreme risk aversion of the prior month,” Kenneth J. Heinz, Hedge Fund Research’s president, said.

“While the April recovery was both strong and broad-based, managers are actively positioning for both continued, high-realised volatility as well as the expanded opportunity set for long/short investing, encompassing trading through the current pandemic conditions and adjusting for the post-pandemic environment.”

Heinz added: “It is likely that the state of macroeconomic trading and investing will remain volatile and fluid in coming months, creating dynamic opportunities for managers to generate outperformance through the remainder of the year.”