Macro in Rare Recent Decline as Hedge Funds Profit: HFR

Macro strategies returned their first monthly loss since November 2023, according to hedge fund indexation and analysis firm HFR, however the broader hedge fund industry benefitted from a rebound in performance from equity managers.

The HFRI Macro (Total) Index was down 0.65% in May, with losses driven by the HFRI Macro: Systematic Diversified Index, which declined 1.3% for the month but remains the leading area of sub-strategy performance over the first five months of the year, with a return of +9.15%. Partially offsetting the May declines, the HFRI Macro: Active Trading Index jumped 2.7%, bringing its 2024 performance to +6.3%.

The broader HFRI Fund Weighted Composite Index advanced +1.3% in May, with additional positive contributions from Relative Value Arbitrage strategies offsetting the decline in Macro. The HFRI Equity Hedge (Total) Index was up 2.5%, reversing the April decline and marking the fifth gain for this index in the trailing seven months.

With bitcoin again on the march, crypto funds benefitted, the HFR Cryptocurrency Index rose 13.6%, while the HFR Risk Parity Vol 15 Index jumped 3.0% for the month.

Performance dispersion declined in May, as the top decile of the HFRI FWC constituents advanced by an average of +7.6%, while the bottom decile fell by an average of -4.1%, representing a top/bottom dispersion of 11.7%. By comparison, the top/bottom performance dispersion in April was 14.3%.

In the trailing 12 months ending May 2024, the top decile of FWC constituents gained +42.9%, while the bottom decile declined -7.3%, representing a top/bottom dispersion of 50.2%. HFR says approximately 70%of hedge funds produced positive performance in May.

“Hedge funds posted strong gains in May, reversing April declines, with leadership from directional equity and credit strategies, as investors positioned for continued inflation, ECB and US Federal Reserve rate cuts, and an improving economic growth in H2 2024,” says Kenneth Heinz, president of HFR. “Uncorrelated Macro hedge funds, the leading strategy area of performance over the first four months of the year, posted its first monthly decline since November as financial market volatility fell in May.

“The primary risks for hedge funds and hedge fund positioning accelerated the shift from macroeconomic risks to geopolitical risks, with these comprising not only ongoing, active military conflicts but also potential for additional conflicts and risks associated with policy changes as a result of major political elections in the coming months,” he continues. “Hedge funds have effectively positioned portfolios in a tactical sense for these highly fluid and uncertain situations, including not only military threats, but possibilities for supply chain disruptions, outright trade embargoes or halts, and destabilising dislocations and volatility associated with banking and broader financial market operation.

“Institutions interested in access to opportunities which may be created by this volatility, as well as portfolio protection from these risks, are likely to increase exposure to hedge funds which have demonstrated their strategy’s robustness of navigating these building and evolving risks over recent months and years,” he adds.