HFR’s Fund Weighted Composite Index – a broad-based index tracking the monthly returns of some 1400 single manager hedge funds across all strategy types – remains negative at -3.95% over the eight-month period to the end of August, as long/short equity hedge funds’ year-to-date losses hit double-digit territory.
- Hedge funds score back-to-back monthly gains in July and August following torrid first half of 2022
- Macro, quant, event driven and energy-focused managers generated the industry’s biggest returns last month, “inversely correlated” to recent market movements
- But long/short equity strategies’ year-to-date losses slide into double-digit territory
HFR’s Fund Weighted Composite Index – a broad-based index tracking the monthly returns of some 1400 single manager hedge funds across all strategy types – remains negative at -3.95% over the eight-month period to the end of August, as long/short equity hedge funds’ year-to-date losses hit double-digit territory.
But last month’s 0.50% rise across all managers follows a July return of 1.27%, which reversed three months of consecutive losses between April and June for the industry.
HFR President Kenneth Heinz said the industry has successfully traversed a sharp stock market slump, rising interest rates, inflation and the widely-predicted aggressive monetary policy to deliver “a strong, inversely correlated gain in August, extending the strong July surge.”
As the Federal Reserve warned that aggressive monetary policy measures would be required to reduce generational inflation, macro hedge funds – which trade broader macroeconomic and geopolitical trends using equities, bonds, commodities, currencies and more – made the biggest gains in August. HFR’s Macro (Total) benchmark advanced 1.57% for the month to put its year-to-date returns up 9.34%. Within this sector, commodities-focused macro strategies climbed 1.07% last month, as currency-based strategies added almost 3.5%. Multi-strategy (2.07%) and quantitative diversified macro managers (1.78%) were also in positive territory.
Equity-focused hedge funds, as measured by HFR’s Equity Hedge (Total) Index, dipped -0.23% last month, leaving managers here down more than 10% on average year-to-date. Only energy and basic materials-focused strategies, which advanced more than 7%, and market neutral managers, up 1.09%, were in positive territory within the equity sub-sector. On the flipside, fundamental growth and technology-focused equity hedge funds suffered the biggest monthly losses in August, each plummeting more than -15%.
Meanwhile, event driven hedge funds – which target stock mispricings and other valuation anomalies stemming from mergers and acquisitions, bankruptcies, takeovers and other corporate events – were up 0.79% in August, powered by multi-strategy (1.63%), merger arbitrage (1.01%), and activist managers (1.01%). Overall, event driven strategies remain in the red to the tune of -4.77% so far in 2022.
Elsewhere, relative value hedge funds were up 0.77% last month, fueled mainly by gains in fixed income sovereign (2.18%), multi-strategy (2.10%), and convertible arb (1.14%). However, relative value managers are still marginally down YTD, at -0.53%.
Heinz added: “Realised volatility was driven by a sharp intra-month sentiment reversal, with the first half of the month driven by an extension of the risk-on sentiment from July, while the second half was driven by powerful risk-off trends as a result of increased expectations for aggressive monetary tightening by the US Federal Reserve to reduce generational inflation.”
Key Implication | Managers and investors: Hedge funds have continued their tentative recovery over the summer following sharp losses in the first half of the year. Macro hedge fund strategies remain ahead of the pack, and have brought the biggest gains for investor portfolios over the course of 2022
