Hedge funds delivered another month of strong performance in May, supported by a continued rally in technology stocks, growing investor enthusiasm around artificial intelligence, and expectations for a robust IPO market later this year, according to the latest data from HFR.
The HFRI Fund Weighted Composite Index (FWC) gained 1.6% during the month, with equity hedge and event-driven strategies leading returns. The advance extends a strong start to 2026 for the industry, despite persistent market volatility and geopolitical uncertainty.
“2026 has been the extreme opposite of a passive beta equity index exposure market cycle,” said Kenneth J. Heinz, president of HFR. “Since the beginning of the year, hedge funds have successfully navigated a succession of intense market dislocations and reversals in equities and commodities, including in the much-vaunted technology sector.”
Equity hedge managers were the strongest performers in May, with the HFRI Equity Hedge (Total) Index rising 2.7%.
Technology-focused strategies were a key contributor, as the HFRI EH: Technology Index surged 10.6%, following a 10.5% gain in April. The index’s two-month return of 22.3% marks its strongest such period since its launch in January 2008.
Other notable contributors included the HFRI EH: Quantitative Directional Index, which gained 4.0%, and the HFRI EH: Fundamental Growth Index, up 3.75%. In contrast, healthcare-focused managers struggled, with the HFRI EH: Healthcare Index declining 2.0%.
Event-driven strategies also posted strong gains amid growing expectations for increased merger activity and a potentially record IPO pipeline in the second half of the year.
The HFRI Event-Driven (Total) Index rose 2.1% in May, led by activist managers, whose benchmark index advanced 4.8%. Special situations strategies gained 2.6%, while distressed and restructuring funds returned 2.0%.
The performance suggests investors are increasingly positioning for a more active corporate transaction environment as financing conditions stabilise and equity markets recover.
Relative value managers generated positive returns despite higher interest rates, benefiting from improved clarity surrounding leadership at the US Federal Reserve.
The HFRI Relative Value (Total) Index gained 0.6% during the month. Corporate fixed income and multi-strategy relative value funds each advanced 0.9%, while asset-backed and convertible arbitrage strategies both returned 0.8%.
Macro managers produced more modest gains as they contended with sharp moves across commodity markets, including a significant decline in oil prices.
The HFRI Macro (Total) Index rose 0.2% in May. Active trading strategies led performance with a 1.7% gain, followed by discretionary thematic managers at 1.2%.
Commodity-focused funds detracted from returns, falling 1.1%, while systematic diversified CTA strategies declined 0.5%.
Elsewhere, the HFR Cryptocurrency Index slipped 0.3% and the HFRI Multi-Manager/Pod Shop Index gained 1.5%.
During the month, HFR also introduced a new suite of Tender Offer Fund Indices designed to track the performance of equal-weighted and asset-weighted baskets of tender offer funds on a daily basis.
The HFR Tender Offer Funds Asset Weighted Index gained 1.0% in May, bringing its year-to-date return to 2.9%.
Liquid alternative UCITS strategies also delivered positive results. The HFRX Market Directional Index rose 5.0%, while the HFRX Global Index advanced 1.7%.
Within the HFRX universe, equity hedge strategies led returns, with the HFRX Equity Hedge Index gaining 2.9%. The strongest contributor was the HFRX EH: Fundamental Growth Index, which surged 5.4%.
Performance dispersion across hedge funds narrowed in May compared with April, although differences between top and bottom performers remained significant.
The top decile of HFRI FWC constituents generated an average return of 13.2%, while the bottom decile lost 5.8%, resulting in a performance spread of 19 percentage points. This compares with a spread of 22.2 percentage points in April.
Over the 12 months through May 2026, the top-performing decile gained 92.4%, while the bottom decile declined 9.0%, creating a dispersion of more than 100 percentage points.
Approximately 70% of hedge funds posted positive returns during the month, according to HFR’s preliminary estimates.
