Following a challenging second quarter, the hedge fund industry came back fighting in July, advancing 2.89% for the month, according to the Barclay Hedge Fund Index, with much of the uplift coming on the back of a seemingly improbable surge in global equity markets.
• Hedge fund performance rebounded in July with a gain of 2.89% for the month
• YTD hedge fund returns remain negative at -6.95% up to the end of July, but ahead of the S&P 500 Total Return Index, which despite strong performance in July remains down -12.58% so far in 2022
• Positive hedge fund subsectors outnumbered those in negative territory by more than two to one in July. Technology led the way with an 11.44% gain for the month
Following a challenging second quarter, the hedge fund industry came back fighting in July, advancing 2.89% for the month, according to the Barclay Hedge Fund Index, with much of the uplift coming on the back of a seemingly improbable surge in global equity markets.
The MSCI ACWI Index (a measure of global equity performance) was up 6.98%, while in the US the S&P 500 Total Return Index and NASDAQ Composite jumped 9.22% and 12.39% respectively.
Up to the end of July, hedge funds are down -6.95%, though they continue to fare better than the S&P 500 Total Return Index, which despite July’s great performance remains down -12.58% for the year.
Hedge fund subsectors gaining ground in July outnumbered those in negative territory by better than two to one. Among the leading gainers the Technology Index was up 11.44%; the Healthcare & Biotechnology Index advanced 4.30%; the Equity Long Bias Index gained 4.17%; the Balanced (Stocks & Bonds) Index was up 3.46%; and the Event Driven Index returned 3.16%.
Subsectors in the red for July included the Emerging Markets Eastern Europe Index off -1.83%; the Distressed Securities Index down -1.23%; and the Fixed Income Arbitrage Index which shed -0.31%.
Year-to-date though, the vast majority of subsectors are in negative up to the end of July. Among those hanging on to profits were the Global Macro Index, which has returned a combined 6.83% in 2022; the Equity Market Neutral Index up 1.30%, and the Emerging Markets MENA Index returning 0.80%.
Subsectors losing ground so far in 2022 included the Emerging Markets Eastern European Equities Index down -38.44%; the Healthcare & Biotechnology Index -17.17%; the Emerging Markets Global Index -14.46%; the Technology Index -14.17%; and the Emerging Markets Asian Equities Index -13.71%.
Q2 GDP readings showed that the US economy’s contracted by -0.9% (annualised) in Q2, following a -1.6% contraction in Q1, indicating the onset of a recession. Prices of a number of key commodities also dropped in anticipation of flagging demand, but equities surged.
“While the sharp upswing in the value of equity markets was certainly a boon for many hedge funds, dismal first half performance has most subsectors still mired in losses,” said Ben Crawford, head of research at BarclayHedge.
“As for whether equities can continue their ‘devil may care’ attitude toward macroeconomic indicators, only time shall tell.”
Key implication | Managers: While a second consecutive quarter of contraction in US GDP, and a drop in the price of several key commodities, would normally indicate the onset of a recession, July’s seemingly improbable surge in equities has muddied the waters in terms of predicting what comes next.
