Hedge Funds Up in July, Macro Dips
Posted by Colin Lambert. Last updated: August 9, 2022
After leading the way throughout 2022 Macro hedge funds finally took a back seat in July, with discretionary funds failing to make up for losses in the quantitative trend-following sector. Perhaps reinforcing the sector’s diversification benefits, Macro’s losses came in a month in which hedge funds generally returned positive results, with nearly 60 percent of hedge funds posting positive performance in July, according to indexation firm HFR.
The latest investable HFRI 500 Fund Weighted Composite Index advanced 1.3% for the month, narrowing the 2022 decline to -2.7%, with gains driven by a recovery in Equity Hedge and Event Driven strategies. Macro strategies pared their strong first half gain, with the investable HFRI 500 Macro Index falling 1.5% for the month, lowering year-to-date performance to +11.9%.
Macro sub-strategy performance was led by the investable HFRI 500 Macro: Commodity Index, which gained 1.9% and has vaulted 37.15% in 2022, and the HFRI 500 Macro: Discretionary Thematic Index, which added 1.4% for the month. Declines were driven by the HFRI 500 Macro: Systematic Diversified Index, which fell 3.0%, paring its 2022 return to +14.8%.
The dispersion of hedge fund performance also narrowed in July, as the top decile of the HFRI constituents advanced by an average of 9.9%, while the bottom decile fell by an average of 5.8%, representing a top-bottom dispersion of only 15.7%. By comparison, the top/bottom dispersion was 26.8% in June and 22.1%in May. Through the first seven months of the year, the top decile of the HFRI has surged an average of 28.9%, while the bottom decile has declined by an average of 26.6%, representing a top/bottom dispersion of 55.5%.
Fixed income-based, interest rate-sensitive strategies also gained in July as the Federal Reserve increased interest rates and inflation remained at extreme levels, with the investable HFRI 500 Relative Value Index advancing 1.5%, while the HFRI Relative Value (Total) Index gained 1.1%.
“Led by high beta strategies, hedge funds posted the strongest gains in 15 months, as powerful risk-on sentiment drove a sharp reversal in equity markets, while the US economy entered a recession and the US Federal Reserve raised interest rates again in an effort to slow generational inflation,” says Kenneth Keinz, president of HFR. “Despite the July equity market recovery, macroeconomic and geopolitical risks remain elevated, with managers effectively navigating rapidly evolving, dynamic and volatile market cycles across equity, fixed income, currency and commodity exposures, driven by global inflationary pressures, uncertain military conflict scenarios and instability in energy markets and supply chains.
“Managers are effectively positioned for both defensive capital preservation and portfolio protection, as well as opportunistic and favourable shifts in the current market paradigm. Institutions are likely to continues to allocate capital to managers which have demonstrated their strategy’s robustness and effectiveness through the recent spike in turmoil and volatility.”