Hedge funds are on a roll with strongest Jan-to-April returns in 20 years

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Arrows heading upwards

Hedge funds are on a roll this year, with the industry recording its best January-to-April performance in more than 20 years, as managers profited from tech gains, commodities moves, strong earnings, and renewed optimism over the reopening US economy.

Overall, hedge funds added 2.74 per cent in April, and have returned 8.68 per cent in the four months since the start of 2021, as measured by Hedge Fund Research’s Fund Weighted Composite Index, a global equal-weighted benchmark of some 1400 single-manager hedge funds.

That was strongest year-to-date return through April since 1999, when it rose 8.56 per cent.

April’s gain was also the index’s seventh consecutive monthly advance, with all but one hedge fund sub-strategy finishing the month in positive territory. Technology, quantitative directional equities, and commodities-focused macro funds were among the strategies that posted the biggest gains.

HFR president Kenneth Heinz said: “Through the seven consecutive months of gains, hedge funds have navigated multiple market cycles (both positive and negative), including a new US political administration, unprecedented fiscal stimulus initiatives, additional virus mutations/variants, and a sharp increase in heavily-shorted, deep value equities driven by retail trading platforms.”

The industry is now in its longest period of consecutive monthly gains since the HFR’s FWC index produced 15 consecutive months up to January 2018.

In the trailing seven-month period, HFR’s FWC has surged 20.5 per cent – the second strongest such period on record – with only the seven-month period up to March 2000 (when it rose 24.1 per cent) being stronger.

Equity hedge funds, which trade stocks long and short across specialised sub-strategies, added 3.15 per cent in April, with all sub-strategies in positive territory. Equity long/short hedge funds are now up more than 10 per cent since the start of 2021, boosted by strong earnings and optimism over the US economic reopening.

Quantitative directional equity funds gained 5.36 per cent, while technology-focused equity long/short managers rose more than 4 per cent. Fundamental growth managers advanced 3.64 per cent – and are now up more than 14 per cent since the start of the year – with fundamental value up 3.54 per cent.

Macro strategies – which make bets on macroeconomic events using equities, fixed income, currencies, commodities, and futures markets – gained 2.71 per cent last month, putting their year-to-date performance at 7.12 per cent.

Here, commodities-focused managers led the pack, with a monthly return of 5.44 per cent that placed them up 9.38 per cent over the four-month period to the end of April. Systematic diversified funds rose more than 3 per cent in April, and have gained 7.33 per cent since the start of the year, while multi-strategy macro funds added almost 2 per cent in April, with a 7.66 per cent YTD advance. Only currency-focused macro funds were down last month, sliding 0.40 per cent, which puts them into negative territory for the year, at -0.53 per cent.

Event driven hedge funds have now gained 10.17 per cent since the start of 2021, bolstered by a 2.40 per cent April rise. Managers running special situations strategies rose 3.12 per cent, and have surged 13.26 per cent between January and April. Elsewhere, activist, credit arbitrage, and merger arbitrage all gained more than 2 per cent last month.

Relative value managers were up 1.50 per cent on a monthly basis, and have scored a 5.17 per cent return so far this year. Multi-strategy funds rose 1.58 per cent in April, while fixed income asset-backed strategies added 1.20 per cent.

Dispersion among winners and losers narrowed during April, as the top decile of the HFR’s database gained an average of 10.3 per cent, while the bottom decile declined by an average of -1.8 per cent for the month – top-to-bottom dispersion of 12.1 per cent.

By comparison, the top-bottom dispersion in March was 15.9 per cet while February saw dispersion of 20.2 per cent.

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Hugh Leask
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Editor, Hedgeweek