Hedge Fund Returns Down in May: HFR
Posted by Colin Lambert. Last updated: June 8, 2022
Hedge funds suffered in May, with even the recent star of the show – Macro – failing to hit positive territory for the month. The investable HFRI 500 Fund Weighted Composite Index declined 0.5% for the month, according to data released today by hedge fund indexation and research firm HFR. The HFRI Fund Weighted Composite Index fell 0.6% for the month.
The top decile of the HFRI constituents gained an average of 5.7% in May while the bottom decile declined by an average of 8.4%, representing a top-bottom dispersion of 14%. Through the first five months of 2022, the top decile of the HFRI has surged an average of 33.9%, while the bottom decile has declined by an average of 25.7%.
In spite of the headline declines, HFR says that approximately 40% of hedge funds posted gains in May.
The investable HFRI 500 Macro Index declined -0.2 percent in May, paring its strong year-to-date gain to +14.1%, with strong contributions from fundamental commodity, multi-strategy and discretionary thematic offset by declines in quantitative, trend-following strategies. Macro sub-strategy performance was led by the investable HFRI 500 Macro: Multi-Strategy Index, which gained 1.7% in May, and the HFRI 500 Macro: Commodity Index, which added 1.2%in May, extending its historic year-to-date return to +38.3%, as the US Federal Reserve began raising interest rates to curb rampant inflation.
Quantitative, trend-following Macro sub-strategies pared strong year-to-date gains with HFRI 500 Macro: Systematic Diversified Index falling 0.7% for the month, bringing year-to-date performance to +17.6%.
Fixed income-based, interest rate-sensitive strategies also posted mixed performance for the month as the investable HFRI 500 Relative Value Index declined 0.5%, while the HFRI Relative Value (Total) Index fell 0.55%. HFRI RVA sub-strategy performance was led by the HFRI RV: Volatility Index which advanced 1.0%, while the HFRI RV: Sovereign Index gained 0.75%. These gains were offset by the HFRI RV: Multi-Strategy Index which fell 1.9% for the month, while the HFRI RV: Yield Alternatives Index declined 1.7%.
“Hedge fund outperformance of US equites continued in and through the extreme financial market volatility in May, with managers navigating not only the continuation of the Russia/Ukraine war, record energy price increases, generational inflation and increasing interest rates, but with the additional factor of increased likelihood of a consumer led US economic recession,” says Kenneth Heinz, president of HFR. “Hedge funds have effectively navigated this intense 2022 volatility with not only Macro, CTA & commodity strategies, but the broad-based HFRI 500 Composite of all hedge fund strategies each producing the largest outperformance of the S&P 500 and Nasdaq Composite indices, respectively, since index inception, through the first five months of a calendar year.
“Institutions invest in hedge funds primarily for defensive capital preservation, portfolio protection and risk mitigation, and are likely to increase allocations in coming quarters as a result of this strong outperformance through the current inflationary volatility, uncertain geopolitical and macroeconomic environment,” he adds.