Hedge funds on a roll with strongest five-month showing since early 2000

Financial data

Hedge fund managers running a range of investment strategies rose again last month, with August’s gains capping the strongest five-month run for the industry in more than 20 years.

The HFRI Fund Weighted Composite Index – an investable barometer of the broader hedge fund industry published by Hedge Fund Research – was up 2.67 per cent last month.

In the five months since April, following Q1’s coronavirus meltdown, the index has surged 15.4 per cent - the strongest five-month total return for hedge funds since February 2000. That puts its index value to an all-time high of 15,093. 

Year-to-date, the index is now up more than 2 per cent since the start of 2020.

HFR president Kenneth Heinz said the impressive run – which is also the third-strongest five-month recovery return from a drawdown trough since HFR’s inception in 1990 – comes despite continued coronavirus concerns globally, ongoing economic and social upheaval in the US, and political uncertainty surround the US election, and underlines the industry’s fortitude.

August’s gains were fuelled mainly by equity-focused hedge funds, which rose 4.25 per cent last month, and are now up 4.63 per cent year-to-date.

Within equities, quantitative-based directional strategies added more than 8 per cent in August, while multi-strategy equity hedge funds rose 5.54 per cent, specialist energy funds gained 5.70 per cent and healthcare-focused strategies added 5.09 per cent for the month.

HFRI’s event driven index meanwhile generated a 2.58 per cent return in August - powered predominantly by activist hedge funds soaring some 8.36 per cent for the month – but the index is still 2.54 per cent in the red year-to-date.

Emerging markets funds climbed 2.34 per cent last month, and have made 3.16 per cent over the eight months since the start of January, while relative value strategies jumped 1.49 per cent last month, but year-to-date are down 1.53 per cent.

Macro-focused strategies saw a more mixed performance – with commodities and discretionary thematic funds in positive territory, but currency-focused funds down - as the index posted flat at 0.11 per cent for August. Year-to-date macro hedge funds remain up 2.28 per cent.

“While recent realised gains have been compelling, the continued dynamic market environment continues to comprise a rich forward-opportunity set for long/short investing, with additional opportunities evolving in highly valued technology names, commodity and crypto currency exposures, as well as improving CMBS and other mortgage spread positions,” Heinz said.

Elsewhere, the investable HFRI 500 Equity Hedge Index surged 3.6 percent for the month, bringing the historic five-month advance to 20.2 percent, also the strongest five-month period since index inception.

August’s positive numbers come after hedge funds recorded their second highest monthly rise in almost 18 months in July, and their third biggest monthly return in a decade, according to HFR data.

Heinz said: “It is likely that institutional investors will continue to increase allocations to hedge funds and other alternative assets as ideal portfolio exposures for opportunistically navigating current and future market uncertainty.”