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Hedge funds post mixed declines in May

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Hedge funds produced mixed declines in May as volatility across global equity, bonds and commodity markets accelerated, with equities falling into correction territory amidst many investors positioning for the US economy to enter recession as a result of generational inflation.

The investable HFRI 500 Fund Weighted Composite Index declined -0.5% for the month, with Macro hedge funds paring strong YTD gains while Event Driven strategies led declines, according to data released today by HFR. The HFRI Fund Weighted Composite Index meanwhile, declined -0.6% for the month.

The top decile of the HFRI constituents gained an average of +5.7% in May while the bottom decile declined by an average of -8.4% for the month, representing a top-bottom dispersion of 14%. Through the first five months of 2022, the top decile of the HFRI has surged an average of +33.9%, while the bottom decile has declined by an average of -25.7%. Approximately 40% of hedge funds posted gains in May.

The investable HFRI 500 Macro Index declined -0.2% in May, paring its strong YTD gain to +14.1%, with strong contributions from Fundamental Commodity, Multi-Strategy and Discretionary Thematic offset by declines in Quantitative, trend-following strategies. Macro sub-strategy performance was led by the investable HFRI 500 Macro: Multi-Strategy Index, which gained +1.7% in May, and the HFRI 500 Macro: Commodity Index, which added +1.2% in May, extending its historic YTD return to +38.3%, as the US Federal Reserve began raising interest rates to curb rampant inflation. Quantitative, trend-following Macro sub-strategies pared strong YTD gains with HFRI 500 Macro: Systematic Diversified Index falling -0.7% for the month, bringing YTD performance to +17.6%.

Fixed income-based, interest rate-sensitive strategies also posted mixed performance for the month as the investable HFRI 500 Relative Value Index declined -0.5%, while the HFRI Relative Value (Total) Index fell -0.55%  in May. HFRI RVA sub-strategy performance was led by the HFRI RV: Volatility Index which advanced +1.0%, while the HFRI RV: Sovereign Index gained +0.75%. These gains were offset by the HFRI RV: Multi-Strategy Index which fell -1.9% for the month, while the HFRI RV: Yield Alternatives Index declined -1.7%.

Equity Hedge funds, which invest long and short across specialised sub-strategies, also posted mixed performance in May, with the investable HFRI 500 Equity Hedge Index falling -0.4% while the HFRI Equity Hedge (Total) Index fell -0.5%. EH sub-strategy performance was led by the HFRI 500 EH: Energy/Basic Materials Index which surged +5.5%, while the HFRI 500 EH: Fundamental Value Index, also gained +0.7%. These gains were offset by losses in the HFRI 500 EH: Healthcare Index, which declined -4.0%, and the HFRI 500 EH: Technology Index, which fell -0.8% in May.

Event-Driven strategies, which often focus on out-of-favour, deep value equity exposures and speculation on M&A situations, posted declines in May, as the investable HFRI 500 Event-Driven Index fell -1.95% and the HFRI Event-Driven (Total) Index lost -1.6% for the month. ED sub-strategy declines were led by the HFRI 500 ED: Special Situations Index, which declined -2.5%, as well as the HFRI 500 ED: Activist Index and HFRI 500 ED: Merger Arbitrage Index, both of which declined -1.7% in May.

Risk premia strategies posted mixed performance for the month, as the HFR Bank Systematic Risk Premia Rates Index surged +5.0% in May, which was partially offset by the HFR BSRP Credit Index which declined -4.3%.

Liquid Alternative strategies also posted narrow declines with the HFRI-I Liquid Alternative UCITS Index falling -0.37% in May, though the HFRI-I Liquid Alternative UCITS Macro Index led monthly performance with a +0.2% return.

The HFRI Diversity Index posted a decline of -2.0% in May while the HFRI Women Index fell -0.5%.

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