Hedge Funds Bounce Back from July Dip

After suffering the first dip in nine months in July, hedge funds returned to positive territory in August.

The HFRI Fund Weighted Composite Index (FWC) gained 0.8% in August, while the investable HFRI 500 Fund Weighted Composite Index advanced +0.45 %, according to data released today by indexation, analysis and research firm HFR.

The HFRI FWC Index is now in double digits for the year, up 10.0%, and has posted gains in 10 of the last 11 months, returning +22.0% over this period.

The performance dispersion of the underlying index constituents narrowed in August, HFR says, reporting the top decile of the HFRI gained an average of 6.0%, while the bottom decile declined an average 3.6% for the month, representing a top-bottom dispersion of 9.7% in August compared to 12.1% in July. In the trailing 12 months, the top decile of the HFRI jumped an average of 71.2%, while the bottom decile declined an average 7.6%.

The fixed income-based, interest rate-sensitive HFRI Relative Value (Total) Index advanced 0.5% in August, while the investable HFRI 500 Relative Value Index added 0.3%, as interest rates increased on expectations for the US Federal Reserve to begin reducing economic stimulus measures. Sub-strategy performance was led by the HFRI RV: Volatility Index, which returned 0.9% for the month, as did the investable HFRI 500 RV: FI-Sovereign Index.

Uncorrelated Macro strategies posted gains in August despite increased political uncertainty from the instability in Afghanistan, with the HFRI Macro (Total) Index gaining 0.2% for the month, while the investable HFRI 500 Macro (Total) Index also advanced 0.2%. Macro sub-strategy performance was led by the HFRI Macro: Commodity Index, which jumped 2.2%, while the HFRI Macro: Multi-Strategy Index added 0.8%.

Risk Premia and Liquid Alternatives posted mixed performance in August, with gains in Credit and Currency exposures. The HFR BSRP Credit Index advanced 2.5% for the month, while the HFR BSRP Currency Index added 1.2 %.

“Hedge funds posted strong gains in August despite an evolving continuum of risk including geopolitical instability, monetary policy, immigration, and ongoing pandemic challenges and complexities, with gains across all strategies led by deep value equity and event driven exposures,” says Kenneth Heinz, president of HFR. “These and other diverse but powerful trends continue to drive strong performance industry-wide, including cryptocurrency trading, energy exposures and interest rate sensitivity.

“With hedge fund industry capital as record levels, institutions continue to increase allocations to managers and strategies which have demonstrated not only performance generation but tactical flexibility to quickly identify and monetize opportunities, often acting as liquidity providers through periods of stress and uncertainty,” he continues. “These funds are trends are likely to lead global industry performance and growth in 2H21.”