Hedge funds posted gains in August as US equities and the dollar expanded their respective divergence with non-US assets, Emerging Markets currencies extended losses, and the US technology sector extended record gains.
The HFRI Fund Weighted Composite Index (FWC) gained 0.7 per cent for the month as all main strategies advanced, bringing the YTD 2018 return of the FWC to +2.0 per cent, as reported today by HFR, the established global leader in the indexation, analysis and research of the global hedge fund industry. The HFRI Fund of Funds (Total) Index returned +1.1 per cent for the month, topping the FWC.
August performance was led by Macro hedge funds, with the HFRI Macro (Total) Index advancing 0.9 per cent, the strongest monthly return since surging 2.75 per cent in January and snapping a three-month decline. Driven by currency exposure, Macro sub-strategy performance was led by quantitative, trend-following CTA strategies, with the HFRI Macro: Systematic Diversified Index jumping 2.3 per cent, also the strongest month since January. Macro Active Trading strategies also advanced in August, with the HFRI Macro: Active Trading Index gaining 1.2 per cent, increasing its YTD performance to 4.9 per cent, which leads all Macro sub-strategies.
Equity Hedge (EH) strategies also gained for the month, with exposure to Healthcare, Technology and Quant strategies offsetting losses in Emerging Markets equities. The HFRI Equity Hedge (Total) Index added 0.9 per cent in August with contributions from Apple, Amazon, Google, Microsoft, AMD and Tesla; the HFRI Equity Hedge Index (Asset Weighted) advanced 1.1 per cent. The HFRI EH: Healthcare Index surged 4.6 per cent, topping both the S&P 500 and DJIA, and extending its YTD return to +15.0 per cent, which leads all HFRI indices for 2018. Similarly, the HFRI EH: Technology Index vaulted 2.1 per cent for the month, while the quantitative HFRI EH: Quantitative Directional Index jumped 2.6 per cent. Partially offsetting these, the HFRI Emerging Markets (Total) Index fell 2.5 per cent in August, driven down by declines in regional exposure to Latin America and Russia/Eastern Europe, as these HFRI regional indices fell 4.7 and 4.3 per cent, respectively.
Event-Driven and Relative Value Arbitrage strategies also advanced in August, as the HFRI Event-Driven Index gained 0.2 per cent, while the HFRI Relative Value Index posted a modest gain 0.04 per cent. ED sub-strategy performance was led by the HFRI ED: Multi-Strategy Index, which returned +1.2 per cent for the month, while RVA sub-strategy performance was led by the HFRI RV: Yield Alternatives Index, which added 1.1 per cent.
Driven by currency divergence and volatility, Risk Premia strategies experienced a wide disparity of performance in August, with the HFR BSRP Multi-Asset Index gaining 3.3 per cent, while the HFR BSRP Currency Index fell 9.0 per cent. Risk Parity Indices also returned mixed performance for the month as the HFR Risk Parity Vol 15 Index added 0.2 per cent, while the HFR Risk Parity Vol 10 Index declined 0.2 per cent.
“Macro hedge funds led industry gains in August as the macroeconomic environment shifted with EM asset volatility spiking while the US Dollar extended gains and technology equities reached record highs,” says Kenneth J Heinz (pictured), President of HFR. “Recent EM weakness has expanded the opportunities for long/short, relative value positioning in EM equities and currencies, while the divergent impact of fluid trade tariff volatility proposals has widened the valuation gap between manufacturing and technology equities, also creating convergence opportunities. It is likely that tactical positioning in the both of these areas will drive performance in coming months.”