Hedge funds declined in June as equity markets extended steep YTD losses, with equities completing the worst first half of a calendar year in over 50 years, volatility accelerating across global equity, bonds and commodity markets, and investors positioning for the US economy to enter recession as a result of generational inflation.
The investable HFRI 500 Fund Weighted Composite Index declined -2.6% for the month, the largest decline since March 2020, as gains in quantitative, trend-following CTA and market neutral equity strategies were offset by declines in the highest beta equity and fixed income strategies, according to data released today by HFR. Larger, more established hedge funds outperformed smaller hedge funds in both June and YTD 2022, as the HFRI Asset Weighted Composite Index (which has the same constituents as the equal-weighted version) fell only -0.9% for the month and has gained +1.55% through mid-year 2022.
The HFRI Fund Weighted Composite Index (FWC) fell -3.1% in June, lowering YTD performance to -5.9%. For comparison, the FWC Index outperformed the S&P 500 by 1,600 bps and the Nasdaq Composite by 2,550 bps through the first six months of 2022, both representing the largest outperformance of equity markets in the first half of a calendar year since FWC Index inception in 1990.
The top decile of the HFRI constituents gained an average of +4.65% in June while the bottom decile declined by an average of -18.30% for the month, representing a top-bottom dispersion of 22.95%. Through H1 2022, the top decile of the HFRI has surged an average of +34.6%, while the bottom decile has declined by an average of -32.2%. Approximately 30% of hedge funds posted positive performance in June, while roughly 37% produced gains in H1 2022.
The investable HFRI 500 Macro Index posted a narrow gain of +0.05% in June, extending YTD performance to +14.2%, with strong contributions from Quantitative, trend-following CTA and Active Trading strategies. Macro sub-strategy performance was led by the investable HFRI 500 Macro: Systematic Diversified Index, which gained +1.1% in June, as the US Federal Reserve began raising interest rates to curb rampant inflation. For H1 2022, Macro sub-strategy performance was led by the HFRI 500 Macro: Commodity Index, which surged +34.0% in the first six months of the year, and the HFRI 500 Macro: Systematic Diversified Index, which vaulted +18.8%.
Fixed income-based, interest rate-sensitive strategies declined in June, as the investable HFRI 500 Relative Value Index fell -2.0%, while the HFRI Relative Value (Total) Index lost -1.75%. For H1 2022, the HFRI 500 Relative Value Index posted a narrow decline of -0.66%, while the HFRI Relative Value (Total) Index fell -2.2%. Over the first six months of the year, RVA sub-strategy performance was led by the HFRI 500 RV: Volatility Index, which gained +10.7%, and the HFRI 500 RV: Multi-Strategy Index, which added +5.8%.
Event-Driven strategies, which often focus on out-of-favour, deep value equity exposures and speculation on M&A situations, posted declines in June as the investable HFRI 500 Event-Driven Index fell -4.15% and the HFRI Event-Driven (Total) Index lost -4.14% for the month. ED sub-strategy declines were led by the HFRI 500 ED: Special Situations Index, which fell -6.5%, and the HFRI 500 ED: Multi-Strategy Index, which lost 4.3% for the month.
Equity Hedge funds, which invest long and short across specialised sub-strategies, also declined in June, as the investable HFRI 500 Equity Hedge Index fell -4.3% while the HFRI Equity Hedge (Total) Index lost -4.5%.
EH sub-strategy declines were led by the HFRI 500 EH: Multi-Strategy Index, which fell -7.8% for the month, while the HFRI EH: Fundamental Value Index lost -7.3%. Partially offsetting these declines, the HFRI 500 EH: Healthcare Index gained +2.5% for the month, while the HFRI 500 EH: Equity Market Neutral Index added +1.0% in June. For H1 2022, EH sub-strategy declines were led by the HFRI 500 EH: Fundamental Growth Index, which fell -21.0% in the first six months of the year. These losses were only partially offset by the HFRI 500: EH Energy Basic Materials Index, which gained +11.8% in H1 2022.
Risk premia strategies also declined in June, as the HFR Bank Systematic Risk Premia Commodity Index posted a narrow loss of -0.1%, while the HFR Bank Systematic Risk Premia Credit Index fell -8.4%. For H1 2022, risk premia strategy performance was led by the HFR Bank Systematic Risk Premia Commodity Index, which gained +11.9%, and the HFR Bank Systematic Risk Premia Multi-Asset Index, which added +4.2% YTD through June 30. Liquid Alternative strategies also declined in June, as the HFRX Absolute Return Index fell -0.94%, while the HFRX Global Hedge Fund Index lost -1.8%. The HFRI Diversity Index declined -5.3% in June, while the HFRI Women Index fell -1.0%.
