Last month, hedge funds posted their strongest performance since January as 2017’s performance drivers – Equity Hedge, Technology, Healthcare and Emerging Markets – led the way, according to HFRI.
The HFRI Fund Weighted Composite Index (FWC) gained 1.2 per cent in July, the ninth consecutive monthly gain and the 16th in the trailing 17 months, bringing YTD performance +4.8 per cent and extending the record Index Value to 13,571.
As previously reported by HFR, total hedge fund assets increased to USD3.1 trillion to conclude H1 2017, as the industry experienced net capital inflows for first time since Q3 2015.
Extending the leadership trend from H1 2017, Equity Hedge (EH) and Emerging Markets (EM) strategies provided the strongest contributions to overall industry performance in July. The HFRI Equity Hedge (Total) Index advanced 1.7 per cent for the month, bringing YTD performance to +7.7 per cent, which tops the full year returns of the EH Index in each of the prior three calendar years. Technology and Fundamental Growth provided the strongest contributions to EH performance in July, with both the HFRI Technology Index and HFRI Fundamental Growth Index gaining 2.3 per cent, topping the S&P 500 in July. For the year, HFRI Healthcare is the leading area of EH sub-strategy performance, with a gain of 12.0 per cent YTD through July.
The HFRI Emerging Markets (Total) Index surged 3.6 per cent in July, the strongest monthly gain since March 2016, bringing YTD performance to +13.5 per cent. EM performance was led by the HFRI EM: Latin America Index, which gained 6.1 per cent in July, bringing YTD performance to +12.4 per cent. For YTD 2017, the HFRI EM: Asia ex-Japan Index leads EM hedge fund performance with a +19.5 per cent return.
Macro strategies also advanced in July, with the HFRI Macro (Total) Index gaining +0.8 per cent, reversing from a June decline. Macro sub-strategy performance was led by the HFRI Macro: Multi-Strategy Index, which gained 1.3 per cent in July, and the quantitative, trend-following HFRI Macro: Systematic Diversified/CTA Index, which added 1.1 per cent.
Event-Driven (ED) strategies posted the 13th consecutive monthly performance gain, with the HFRI Event-Driven (Total) Index advancing 0.9 per cent, bringing YTD performance to +5.1 per cent. ED sub-strategy performance was led by Special Situations and Distressed exposures, with the HFRI Special Situations Index gaining 1.5 per cent and the HFRI Distressed Index adding 1.4 per cent. Larger ED funds posted relatively stronger performance in July, with the HFRI Event-Driven Index (Asset Weighted) advancing 1.8 per cent.
Fixed income-based Relative Value Arbitrage (RVA) strategies completed its 17th consecutive month without posting a decline, as the HFRI Relative Value (Total) Index advanced 0.6 per cent in July. RVA sub-strategy performance was led by exposures to corporate and high yield bonds, as well as to real estate and energy infrastructure partnerships, as both the HFRI RV: Corporate Index and HFRI RV: Yield Alternatives Index advanced 1.0 per cent for the month.
“After a strong 1H17, which saw inflows resume and assets reach a record milestone, hedge funds posted a strong beginning to 2H17 with the highest monthly gain since January despite increasing geopolitical and global trade tensions,” says Kenneth J Heinz (pictured), President of HFR. “With equity and fixed income markets near all-time highs and implied volatilities near historical lows, forward-looking and institutional investors are expanding their allocations to alternatives as a mechanism to manage and reduce overall portfolio beta while capturing specialised exposures to sophisticated alpha and risk premia strategies.”
