Hedge funds turn up the heat with strong gains across equities, macro and activist strategies

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Hedge funds have stormed into the second half of the year, recording their second highest monthly return in almost 18 months, and their third biggest monthly return in a decade, with equities and macro-focused managers leading the way.

New data for July published by Hedge Fund Research shows widespread gains across an assortment of strategies.

HFRI president Kenneth Heinz pointed to surging gains in July across technology, activist, CTAs and volatility strategies, along with cryptocurrency funds. He said institutional investors are now looking to increase exposure to hedge funds in light of strong performance throughout this year’s volatility.

Overall, the HFRI Fund Weighted Composite Index - an investable barometer of the wider hedge fund industry – added 3.24 per cent in July, its fourth consecutive monthly advance. Having suffered heavy losses during the Q1 coronavirus sell-off, hedge funds’ fightback has inched the benchmark towards near-positive territory, at -0.27 per cent, year-to-date.

Equity-focused hedge funds led performance in July, advancing 3.68 per cent. Sector specialists did particularly well, with managers trading in energy adding almost 5 per cent, and technology-focused funds gaining 4.10 per cent. Multi-strategy equity hedge funds added 4.84 per cent.

HFRI’s Macro Index meanwhile advanced 3.48 per cent, powered predominantly by multi-strategy macro managers, who were up more than 5 per cent, and systematic diversified strategies, which gained 3.87 per cent.

Event driven managers were up 2.65 per cent in July, with activist hedge funds proving the strongest sub-strategy, surging 6.40 per cent for the month. At the same, special situations fund added more than 3 per cent.

HFRI’s Relative Value (Total) Index rose 2.11 per cent. Gains were driven chiefly by convertible arbitrage-focused strategies, which returned 3.82 per cent in July, and volatility funds, up 2.77 per cent.

Elsewhere, the HFR Blockchain Index spiked 30.3 per cent for the month, with Bitcoin posting strong gains.

July has proved one of the best performances on record for the hedge fund industry. The HFRI Fund Weighted Composite Index’s 3.24 per cent return in July was its second-best monthly performance, following April 2020’s 4.54 per cent advance, since January 2019’s 3.50 per cent advance, and its third best since the 3.48 per cent rise back in September 2010.

Heinz said: “Institutional investors are actively looking to increase exposure to hedge funds and alternative strategies in H2 2020 as a direct and ongoing result of the intense and extreme volatility from H1 2020, including both realised and implied volatility, and positive and negative market cycles.”

He added: “Positive performance for 2020 has contributed to an environment of and expectations for strong industry-wide growth into 2021."