Macro to the Fore Again as Hedge Funds Struggle in October

While October was a difficult month generally for the broader hedge fund industry, Macro strategies again highlighted their value in volatile times by providing a positive boost to the industry data as published by indexation and analytical firm HFR.

The HFRI Macro (Asset Weighted) Index was up 0.7% in October, the third consecutive month of positive performance, bringing the trailing three-month return to +4.2%. Year-to-date the Macro Index is +2.6%. Macro sub-strategy performance was led by fundamental discretionary strategies as well as active trading strategies, with the HFRI 500 Macro: Discretionary Thematic Index up 1.6 %, while the HFRI Macro: Active Trading Index added +0.42%. The HFRI Macro: Currency Index advanced 0.2% in October, while a lot of this performance was sucked out of the market by the HFRI Macro: Commodity Index declining 2.9%.

Fixed income-based, interest rate-sensitive strategies also posted a narrow gain for October as interest rates surged, with the HFRI 500 Relative Value Index adding +0.2%.

Overall, hedge funds posted mixed performance in the volatile month, while the HFRI Asset Weighted Composite Index (FWC) was essentially unchanged, posting a narrow decline of -0.02%, the HFRI Fund Weighted Composite Index, which applies equal weights to all constituent funds, declined -1.4%.

Performance dispersion declined slightly, as the top decile of the HFRI FWC constituents advanced by an average of +4.0%, while the bottom decile fell by an average of -8.8%, representing a top/bottom dispersion of 12.8%. This compares to a 13.4% dispersion in September and is significantly below the year-to-date dispersion, which is a massive 29.3%. HFR says approximately 30% of hedge funds posted positive performance in October.

“Extending and accelerating the leadership trends of September, the volatile month of October saw Macro hedge funds and the industry’s largest firms post gains and lead industry performance as both bonds and equities posted steep declines in a correlated manner, interest rates hit recent highs, and inflationary pressures remained strong, while complex geopolitical risks spiked with the outbreak of military conflict in Israel,” says Kenneth Heinz, president of HFR. “Top Macro hedge funds posted strong gains led by fundamental and trading focused strategies, with the industry’s largest funds driving gains in asset weighted composites for the month.

“In addition to Macro, interest rate-sensitive, fixed income based Relative Value Arbitrage strategies also posted narrow gains through the volatile month, once again demonstrating strong defensive positioning and opportunistic trading as interest rates increased,” he continues. “Continuing this powerful trend and again led by the industry’s largest funds, managers remain aggressive and opportunistically positioned for acceleration of this financial market volatility, with an increased likelihood of destabilizing dislocations. As with the previous month, institutions interested in a combination of opportunistic exposure to these powerful trends, as well as defensive capital preservation through the volatility, are likely to increase allocations to managers which have generated strong performance through these recent market headwinds.”