Hedge funds extended their June performance surge through July, again led by technology, AI and growth, with gains in these areas complemented by shareholder activist, financials and commodity sub-strategies, according to data from HFR.
HFR says the gains came as many US companies posted better than expected earnings, the US Fed raised interest rates, while inflationary pressures showed additional signs of easing.
The investable HFRI 500 Fund Weighted Composite Index advanced +1.7% (estimated) in July, following the strongest monthly gain since February 2021 in June.
The HFRI Fund Weighted Composite Index (FWC) meanwhile, also advanced in July, gaining an estimated +1.5%, similarly driven by event driven and equity hedge strategies.
Performance dispersion ticked lower again in July, as the top decile of the HFRI FWC constituents advanced by an average of +9.3%, while the bottom decile fell by an average of -3.8%, representing a top/bottom dispersion of 13.1% for the month. By comparison, the top/bottom performance dispersion in June was 14.1%.
Through the first seven months of the year, the top decile of FWC constituents gained +30.3%, while the bottom decile declined -12.8%, representing a top/bottom decile of 43.0%. Approximately 70% of hedge funds posted positive performance in July.
Event-driven strategies, which often focus on out-of-favour, deep value equity exposures and speculation on M&A situations, led strategy gains in July, driven by shareholder activist and multi-strategy sub-strategies. The investable HFRI 500 Event-Driven Index jumped +2.9% (estimated) for the month, while the HFRI Event-Driven (Total) Index added +2.6%.
ED sub-strategy performance was led by the HFRI ED: Activist Index, which surged an estimated +3.7% in July, the HFRI ED: Special Situations Index, which jumped +3.4%, and the HFRI ED: Multi-Strategy Index, which added +2.7% for the month. Through the first seven months of 2023, the HFRI Event-Driven (Total) Index gained +5.1%.
Equity hedge funds, which invest long and short across specialised sub-strategies, also drove industry-wide gains in July, driven by technology, growth & AI exposures, which were complemented by gains in energy & financials. The HFRI 500 Equity Hedge (Total) Index surged +2.7% in July, while the HFRI Equity Hedge (Total) Index advanced +2.0% for the month. EH sub-strategy gains were led by the HFRI 500 EH: Technology Index, which vaulted +4.5% in July, and the HFRI 500 EH: Fundamental Value Index (which includes exposure to Financials), which gained +3.2%. Through the first seven months of 2023, the HFRI Equity Hedge (Total) Index led strategy performance, advancing +7.8%.
Fixed income-based, interest rate-sensitive strategies also advanced in July, as the Federal Reserve raised interest rates and inflationary pressures eased, while regional banking volatility subsided. The HFRI 500 Relative Value Index gained an estimated +1.0% for the month, while the HFRI Relative Value (Total) Index advanced +0.9% (estimated). RV sub-strategies were led by the HFRI 500 RV: FI-Sovereign Index, which gained +4.3% in July, and the HFRI 500 RV: Asset Backed Index, which added +2.0%.
Uncorrelated macro strategies also gained in July, led by commodity and fundamental discretionary thematic strategies. The HFRI Macro (Total) Index gained +0.5% for the month, while the investable HFRI 500 Macro Index added an estimated +0.1%. The HFRI Macro: Commodity Index jumped +3.8% in July, while the HFRI 500 Macro: Discretionary Thematic Index advanced +2.2%.
Liquid alternative UCITS strategies also posted gains in July, with the HFRX Global Index advancing +0.52%, led by the HFRX Event Driven Index, which gained +0.93%, and the HFRX Relative Value Index, which added +0.90% for the month. The HFRI Diversity Index jumped +2.6% in July, while the HFRI Women Index added +1.4%.