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Hedge fund performance mixed in May, says HFR

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Hedge funds posted mixed performance in May as banking volatility evolved throughout the month following the closure and acquisition of First Republic Bank by JPMorgan. While Financials and Energy declined, Technology and AI surged through May.

The HFRI 500 Fund Weighted Composite Index declined -0.2%(estimated) in May as managers navigated banking, energy and (primarily positive) technology volatility with performance led by Relative Value Arbitrage and Macro strategies.

The HFRI Fund Weighted Composite Index (FWC) posted mixed performance in May, also declining -0.2%, as modest gains in Relative Value strategies were offset by declines in Event-Driven strategies, according to data released today by HFR, the established global leader in the indexation, analysis and research of the global hedge fund industry.

Performance dispersion widened in May, as the top decile of the HFRI FWC constituents advanced by an average of +6.7%, while the bottom decile fell by an average of -7.1%, representing a top/bottom dispersion of 13.8% for the month. By comparison, the dispersion in April performance was 10.9%. Approximately 40% of hedge funds posted positive performance in May.

Fixed income-based, interest rate-sensitive strategies led performance in May, as regional banking volatility subsided following the closure and acquisition of First Republic Bank, while uncertainty about the near-term path of US interest rates remained uncertain. The HFRI 500 Relative Value Index gained an estimated +0.4% for the month, while the HFRI Relative Value (Total) Index advanced +0.05% (estimated). 

Leading sub-strategy performance, the HFRI 500 RV: Volatility Index advanced +0.7% in May, while the HFRI RV: Fixed Income-Convertible Arbitrage Index added +0.6%.

Uncorrelated Macro strategies posted mixed performance for the month led by quantitative, trend-following CTA strategies, as volatility evolved and uncertainty remained regarding the near-term path of interest rates. The investible HFRI 500 Macro Index gained +0.3% for the month, while the HFRI Macro (Total) Index fell -0.16%. The HFRI 500 Macro: Systematic Diversified Index advanced +0.9% in May, while the HFRI 500 Trend Following Index added +0.5%.

Equity Hedge funds, which invest long and short across specialized sub-strategies, posted narrow declines in May, as gains in Technology concentrated in Semiconductors and AI were offset by losses in Energy and Financials sub-strategies. The HFRI Equity Hedge (Total) Index was nearly flat for the month, falling only -0.03%, while the investable HFRI 500 Equity Hedge (Total) Index lost an estimated -0.3%. EH sub-strategy gains were led by the HFRI 500 EH: Technology Index, which surged +4.5% in May, while the HFRI 500 EH: Fundamental Growth Index added +0.7%. Offsetting these gains, the HFRI 500 Energy/Basic Materials Index declined -2.0% for the month, while the HFRI 500 EH: Multi-Strategy Index fell -1.9%.

Event-Driven strategies, which often focus on out-of-favour, deep value equity exposures and speculation on M&A situations, also declined in May despite a gain in Shareholder Activist strategies, as financial risk shifted from regional banks to broader economic uncertainty. The investable HFRI 500 Event-Driven Index declined -1.8% (estimated), while the HFRI 400 Event-Driven (Total) Index declined an estimated -2.0% for the month. ED sub-strategy performance was led by the HFRI ED: Activist Index, which surged an estimated +1.5% in May. This was offset by losses in the HFRI 500 ED: Special Situations Index, which fell an estimated -3.1%, and the HFRI ED: Merger Arbitrage Index, which declined -2.3% for the month.

Liquid Alternative UCITS strategies also posted mixed performance in May, with the HFRX Global Index declining -0.5%; strategy performance was led by the HFRX Macro Index, which gained +0.9%, and the HFRX Equity Hedge Index, which added +0.3% for the month. The HFRI Diversity Index declined an estimated -0.5% in May, while the HFRI Women Index fell -0.25%.

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