Macro hedge funds gain in volatile January, says HFR
Macro hedge funds posted strong, negatively-correlated gains in January as equity and fixed income markets suffered steep losses, while investors positioned for sharp interest rate increases and generational inflationary pressures to begin 2022, with investable HFRI 500 Macro Index advancing +1.35 per cent for the month.
The gains in Macro combined with narrow gains across fixed income Relative Value Arbitrage strategies partially offset weakness in higher-beta, directional strategies, as the HFRI Fund Weighted Composite Index (FWC) declined -1.7 per cent for the month, topping the sharp decline of the Nasdaq by over 700 basis points. The investable HFRI 500 Fund Weighted Composite Index also declined -1.7 percent for the month, following a gain of +9.93 per cent for 2021, according to data released by HFR, the established global leader in the indexation, analysis and research of the global hedge fund industry.
The performance dispersion of the underlying HFRI index constituents expanded in January, with the top decile of the HFRI gaining an average of +7.2 per cent, while the bottom decile declined by an average of -12.6 per cent for the month, representing a top-bottom dispersion of 19.8 percent. In comparison, the top-bottom dispersion in December 2021 was 18.0 per cent. For the full year 2021, the top decile of the HFRI soared by an average of +44.9 per cent, while the bottom decile declined by an average of -15.4 per cent. Approximately 40 percent of funds in the HFRI FWC generated positive performance in January.
Macro strategies led industry performance in January with strong gains across Commodity, Discretionary, and Quantitative strategies. The investable HFRI 500 Macro Index advanced +1.35 per cent for the month, while the HFRI Macro (Total) Index advanced +0.85 per cent. Macro sub-strategy gains were led by the HFRI Macro: Commodity Index, which surged +5.5 percent on record US inflation, while the HFRI Macro: Discretionary Thematic Index advanced +0.6 per cent and the HFRI Macro: Systematic Diversified Index added +0.2 per cent in January.
Fixed income-based, interest rate-sensitive strategies generated a narrow gain for the month as bond yields surged, with gains in yield alternative funds offsetting narrow declines across other sub-strategies. The HFRI Relative Value (Total) Index posted a narrow gain of +0.1 per cent in January, while the investable HFRI 500 Relative Value Index posted a narrow decline of -0.2 per cent. Sub-strategy performance was led by the HFRI RV: Yield Alternatives Index, which gained +1.3 per cent, and the HFRI RV: Fixed Income Corporate Index, which added +0.6 per cent.
Equity Hedge funds, which invest long and short across specialised sub-strategies, posted a decline to begin 2022 after leading strategy performance in 2021, with the HFRI Equity Hedge (Total) Index declining -3.4 per cent, while the investable HFRI 500 Equity Hedge Index fell -4.2 per cent for the month, with the former topping the decline of the Nasdaq Composite Index by over 550 bps. EH sub-strategy declines were driven by the HFRI EH: Technology Index, which fell -7.9 percent in January, and the HFRI EH: Healthcare Index, which declined -6.9 per cent.
Event-Driven strategies, which often focus on out-of-favour, deep value equity exposures and speculation on M&A situations, also declined in January led by higher-beta Activist and Special Situations strategies. The investable HFRI 500 Event-Driven Index fell -2.7 per cent for the month, while the HFRI Event-Driven (Total) Index lost -2.3 per cent, which followed a calendar year 2021 return of +12.4 percent, the highest annual performance since 2013. ED sub-strategy declines were led by the HFRI ED: Activist Index, which fell -8.3 per cent in January, and the HFRI ED: Special Situations Index, which lost -2.5 per cent. For the full year 2021, ED performance was led by the HFRI ED: Activist Index, which jumped +16.1 per cent.
Risk Premia strategies declined in January as risk-off sentiment drove losses, with the HFR BSRP Multi-Asset Index falling -7.55 per cent for the month, while the HFRI BSRP Currency Index posted only a narrow decline of -0.03 per cent. The HFRI-I UCITS Liquid Alternative Index declined -0.97 per cent in January.
The HFRI Diversity Index fell -1.0 per cent in January, while the HFRI Women Index lost -2.0 per cent.
“Macro hedge funds surged to impressive, negatively-correlated gains in January as financial market volatility spiked, and as equity and fixed income markets posted steep losses, demonstrating both capital preservation and portfolio volatility protection as US inflation reached levels not seen since the early 1980’s,” says Kenneth J Heinz, President of HFR. “Macro gains were distributed across diverse Macro sub-strategies, including Commodity, Fundamental Discretionary, and quantitative, trend-following while fixed income-based Relative Value Arbitrage, the most interest rate-sensitive strategy, posted a narrow gain as rates rose sharply. Looking into 2022, hedge funds have adjusted positioning to trends and drivers of performance which are not a continuation of the last two years, with primary focus on inflation and interest rate sensitivity, commodities, M&A and selective, hedged equity exposures. Funds tactically positioned for these dynamic macroeconomic and geopolitical risks and opportunities are likely to lead industry performance through a volatile 1H22.”