Equity long-short strategies outperformed others with average gains of 2.7% for the second quarter of the year with global macro managers in particular underperforming, according to investment firm and ETF sponsor Unlimited’s Hedge Fund Barometer.
Based on Unlimited’s data, equity long-short managers held normal levels of overall equity exposure during the quarter, but have increasingly taken larger positions in large-cap growth stocks and cut exposure to small- and mid-caps in Q2 2024. This marks a reversal in their approach from 2022 and 2023, when managers were overweight smaller stocks with lower valuations.
“Market and economic trends oscillated quickly in the second quarter and global macro funds on average had a hard time finding returns while long/short managers benefitted from their exposure to the big tech names,” said Bob Elliott, CEO and CIO of Unlimited. “In the commodities space, funds are heavily short energy, but long gold, metals and agricultural commodities. This creates the possibility for a short squeeze in energy later this year if the market turns bullish.”
According to Unlimited’s latest Barometer, hedge fund performance was modestly positive across most strategies in Q2 2024, with average gross returns across all strategies of just below +1.5%. The best performing fund style was long/short equity at +2.7%, while the the worst performer was global macro at -0.1%.
The Barometer also reveals that hedge funds held widely divergent views across commodity markets – long agricultural commodities, gold, and metals, but near max short on energy.
Funds also added to their bullish US dollar positions, reflecting the significant relative strength of the US economy, tighter relative Fed policy, and strong asset performance, but remained cautious on US bonds, reflecting the continued low term premium, significant ongoing supply, tight monetary policy and satisfactory growth conditions.
In addition, hedge funds pulled back on their previous overweight positions in Japanese stocks as it became increasingly clear domestic growth conditions have softened and the BoJ is considering tightening (and more FX intervention) ahead.
Fixed income managers, meanwhile, continued to hold near record exposure to corporate spreads to generate modest returns despite secularly low spread levels. According to Unlimited, they appear to be holding near their highest level of credit risk in history while spread levels are near all-time lows. With spreads so tight, these managers may have difficulty driving returns even with such high leverage. Current positioning suggests these managers are unlikely to have capacity to squeeze spreads lower.
Unlimited’s Barometer uses machine learning technology and multiple data sources to track performance metrics for the major hedge fund strategies, providing insight into how hedge funds are positioned across major asset classes, industry sectors and geographies.
