Hedge funds cut losses with stellar Q2 gains as equities lead in June – but industry remains down in tumultuous half-year

Volatility

A number of hedge fund strategies, including discretionary macro managers and specialist technology and healthcare-focused equity long/short funds, have taken profits in the first half of 2020, as the wider industry continues to claw back losses following the bedlam that rocked markets earlier in the year.

Overall, hedge funds gained close to 2 per cent in the month of June, their third consecutive monthly advance, according to new data from Hedge Fund Research, powered mainly by equities and event driven strategies. 

But the HFRI Fund Weighted Composite Index, an investable barometer of the wider industry, remains down for the year despite the recent recovery, which included a striking Q2 rise of more than 9 per cent. In what has been a memorable six-month period for markets, the index dropped 3.49 per cent – a slide stemming largely from agonising losses during March’s coronavirus-fuelled sell-off.

“Despite the strong Q2 recovery, risks and realised volatility associated with additional virus contagion, social unrest, and the upcoming US election remain elevated,” says HFR president Kenneth Heinz.

“Funds which have demonstrated their strategy’s success and resiliency through H1 volatility are likely to lead industry performance and growth in H2 2020.”

Equity-focused hedge funds, represented by HFRI’s Equity Hedge (Total) Index, were up 3 per cent in June, leading industry performance with an eye-catching 13.6 percent Q2 return as stock markets rallied. Yet the index remains in the red by 2.93 per cent year-to-date.

While most equity-focused hedge funds soared into the double-digits during Q2, only technology and healthcare equity-focused strategies translated that into a H1 rise.

Tech-focused funds surged more than 7 per cent last month (and more than 17 per cent Q2) to bring their year-to-date returns to 12.7 per cent for the year. Managers that trade healthcare stocks meanwhile added 0.88 per cent in June, and were up 3.88 per cent for H1.

Market neutral (0.64 per cent), growth (3.92 per cent) and value (2.99 per cent) equity hedge fund all gained ground in June, but are still negative on a year-to-date basis.

Discretionary thematic macro managers added 1.11 per cent in June, and advanced 2.60 per cent in H1 2020.  Macro managers who trade currencies added 1.82 per cent last month,  and have risen 6.82 per cent YTD. Overall, though, HFRI’s Macro (Total) Index is still down 1.11 per cent, having slipped 0.47 per cent in June.

Elsewhere, event driven hedge funds saw performance grow 2.54 per cent last month. But longer-term, between the start of January and the end of June, such strategies have lost 6.77 per cent, despite a stellar Q2 performance of 9.57 per cent.

Within the event driven sector, activist managers climbed 1.42 per cent last month, but overall have lost more than 14 per cent in 2020 so far. Credit arbitrage funds, looking to capitalise on the sizeable dislocations erupting out of the prevailing economic turmoil, gained 4.38 per cent in June, but remain down more than 8 per cent YTD. Only multi-strategy event driven managers are in the black for the year, up 7.64 per cent – powered by a near-12 per cent June gain.

Meanwhile, emerging markets hedge funds increased some 4 per cent in June, but have given back close to 5 per cent year-to-date.