Hedge funds surge into double-digit territory after August rebound

Arrows heading upwards

Hedge funds’ narrow rise during August has driven their year-to-date returns back into double-digit territory, as equity long/short, event driven, macro and relative value managers all scored gains in the face of the Afghanistan crisis, ongoing monetary policy uncertainty, and Covid’s continued impact on markets.

Hedge Fund Research’s main Fund Weighted Composite Index – a broad-based index tracking the monthly returns of some 1400 single manager hedge funds across all strategy types – rose 0.80 per cent last month.

August’s positive performance reversed July’s narrow 0.60 per cent loss, which had been the benchmark’s first down month since September 2020.

The rise puts the industry up 10 per cent since the start of this year, and the index has also now registered positive returns in 10 of the last 11 months, rising 22 per cent over this period.

HFR president Kenneth Heinz says the gains came amidst an “evolving continuum of risk”, including geopolitical instability, monetary policy, immigration, and ongoing pandemic challenges and complexities.

“With hedge fund industry capital as record levels, institutions continue to increase allocations to managers and strategies which have demonstrated not only performance generation but tactical flexibility to quickly identify and monetise opportunities, often acting as liquidity providers through periods of stress and uncertainty,” Heinz added.

Equities-focused hedge funds were up 1.18 per cent last month overall, according to newly-released HFR data, putting their year-to-date returns to 11.94 per cent.

Sector-specialist managers led the way, with healthcare hedge funds gaining 3.26 per cent for the month, and technology-focused strategies rising 3.02 per cent. Elsewhere, energy-based strategies rose 2.21 per cent – and are now up almost 21 per cent over the eight-month period – while quantitative directional strategies made a 1.45 per cent monthly return, and have gained 10.61 per cent YTD.

Equity market neutral, fundamental growth, and fundamental value were all up just over 1 per cent in August, though multi-strategy equity hedge funds registered the sole loss in the equity category, sliding 1.04 per cent.

Year-to-date, fundamental value managers are up 15.50 per cent, multi-strategy funds have advanced close to 12 per cent, and fundamental growth strategies have made 10.77 per cent.

Macro hedge funds – which trade broader macroeconomic and geopolitical trends using equities, bonds, currencies, and commodities, among other assets – edged into positive territory with a 0.23 per cent August rise. Year-to-date, they have now generated a 7.96 per cent return.

Gains were patchy in this sub-sector during August, with commodity-focused funds up 2.16 per cent in August, and 16.82 per cent YTD, as discretionary thematic macro hedge funds added 0.35 per cent to put them up 5.82 per cent. Multi-strategy managers have risen almost 8 per cent YTD, aided by August’s 0.83 per cent return, while currencies and systematic diversified strategies each lost almost 1 per cent in August.

Event driven strategies – which target stock mispricings and other valuation anomalies stemming from mergers and acquisitions, bankruptcies, takeovers and other corporate events – have now advanced 11.37 per cent over the past eight months, having generated a 0.96 per cent monthly return in August. All sub-strategies ended the month in positive territory – multi-strategy added 3.75 per cent, activist managers gained 1.48 per cent, and merger arbitrage rose 1.21 per cent.

Event driven hedge funds have seized on the ongoing corporate activity rebound this year, with activists up 14.57 per cent, distressed and restructuring-focused strategies rising 14.19 per cent, and multi-strategy and special situations managers both advancing more than 11 pe cent on a year-to-date basis.

Relative value hedge funds were up 0.48 per cent in August, and 6.81 per cent year-to-date, with asset-backed, convertible arbitrage, multi-strategy and volatility funds all rising just under 1 per cent for the month.

Emerging markets managers endured a more mixed set of returns in August. China-focused managers and Asia ex-Japan strategies ended August in the red to the tune of 0.60 per cent and 1.65 per cent, respectively. On the flipside, India-focused strategies rose 2.39 per cent, Middle East and North Africa funds added 1.45 per cent, and hedge funds trading Russia and Eastern European markets advanced almost 5 per cent. Overall, EM strategies were up 0.57 per cent in August, and year-to-date they have added 7.68 per cent.

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Hugh Leask
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