Hedge funds posted declines in October amid mixed strategy performance as investors positioned for the US Presidential election amid ongoing conflicts in the Middle East and Ukraine and corporate earnings ranged widely from strong to weak, according to the latest data from HFRI.
The HFRI Fund Weighted Composite Index (FWC) declined -0.7% in October, while the HFRI Asset Weighted Composite Index fell -0.6% for the month, according to data released today by HFR. Performance gains of +0.6% in the HFRI Relative Value Index were more than offset by declines in the HFRI Macro Index, which fell -2.0% in October.
The recently launched HFRI Multi-Manager/Pod Shop Index declined -0.46% for the month as managers positioned for election volatility, while the HFR Cryptocurrency Index advanced an estimated +3.5%, increasing its YTD return to +21.7% through October.
Hedge fund performance dispersion contracted in October, as the top decile of the HFRI FWC constituents advanced by an average of +3.8%, while the bottom decile fell by an average of -7.3%, representing a top/bottom dispersion of 11.1% for the month. By comparison, the top/bottom performance dispersion in September was 13.1%. In the trailing 12 months ending October 2024, the top decile of FWC constituents gained +49.4%, while the bottom decile declined -12.2%, representing a top/bottom dispersion of 61.1%. Approximately 45% of hedge funds produced positive performance in October.
Fixed income-based, interest rate-sensitive strategies led strategy performance in October, as US interest rates increased and equities declined heading into the early November US Presidential election, with the HFRI Relative Value Index gaining an estimated +0.6% for the month. RVA strategy performance was led by the HFRI RV: FI-Sovereign Index, which advanced +1.0% for the month, followed closely by the HFRI RV: FI-Asset Backed Index, which added +0.9%, increasing its YTD 2024 return to +8.4%.
Event-driven (ED) strategies, which often focus on out-of-favour, deep value equity exposures and speculation on M&A situations, reversed recent monthly gains with a decline in October, as the HFRI Event-Driven Index fell -0.35%. ED sub-strategy declines were led by the HFRI ED: Activist Index, which fell -2.6%, though these were partially offset by gains in the HFRI ED: Credit Arbitrage Index, which advanced +3.45%, as managers positioned for a building M&A cycle through year-end, resulting from clarity on US presidential election, and improving economic outlook.
Equity hedge (EH) funds, which invest long and short across specialised sub-strategies, also declined in October with the HFRI Equity Hedge Index falling an estimated -0.7% for the month to bring the YTD return to +9.6%, which leads all main strategy indices YTD 2024. EH sub-strategy declines were led by the HFRI EH: Quantitative Directional Index, which declined -2.0% for the month, though remains the leading area of performance across all sub-strategies with a YTD return of +14.3% through October.
Macro strategies led declines in October as US interest rates increased and investors positioned for the US Presidential Election, with the HFRI Macro Index falling -2.0%. Macro sub-strategy declines were led by the HFRI Macro: Systematic Diversified Index, which posted a monthly decline of -3.3% on weakness in quantitative, systematic, trend-following exposures. Partially offsetting these declines, the HFRI Macro: Discretionary Thematic Index gained +0.15% for the month.
Liquid alternative UCITS strategies also declined in October, as the HFRX Absolute Return Index posted a narrow decline of -0.07% while the HFRX Global Hedge Fund Index fell -0.66%. Strategy declines were led by the HFRX Macro Index, which fell -1.75%, while the HFRX Relative Value Index posted a narrow decline of -0.21%.
“With clarity on the US election results, investors and managers are actively adjusting exposures to their expectations for priority policy shifts on international trade, manufacturing, immigration, energy, security with these changes resulting in significant impacts for monetary and fiscal policy, supply chains, M&A, and geopolitical risk,” said Kenneth J Heinz, President of HFR. “It is likely that institutional investors seeking to maximise their exposure to these powerful trends and opportunities, while minimising risk and uncertainty, will increase exposure to hedge funds which have demonstrated both historically and recently through these market cycles, their strategy’s robustness as a mechanism for achieving these portfolio objectives in 2025.”
