Hedge Funds Continue Positive Run into 2024
Posted by Colin Lambert. Last updated: February 8, 2024
Hedge funds have reinforced a good fourth quarter of 2023 by posting gains in January 2024, with fixed income strategies leading the way in what was generally a positive month all round with the exception of event-driven strategies.
According to early estimates from indexation and analytical firm HFR, its fund-weighted composite index (FWC) rose 0.28% in January, with fixed income-based, interest rate-sensitive strategies leading performance in January, thanks to interest rate increases, and investors positioning for elevated interest rates at the start of the year.
The HFRI Relative Value (Total) Index rose an estimated 0.62%, led by the HFRI RV: FI-Corporate Index, which gained 1.14%, while the HFRI RV: FI-Convertible Arbitrage Index added an estimated 1.06% in January.
Uncorrelated Macro strategies also posted gains in January thanka to rising interest rates on the back of strong US economic data, with the HFRI Macro (Total) Index advancing and estimated 0.43% for the month. Macro sub-strategy gains were led by the HFRI Macro: Commodity Index, which rose 1.36 %, while the HFRI Macro: Multi-Strategy Index also added 1.25%.
Performance dispersion declined, as the top decile of the HFRI FWC constituents advanced by an average of +6.06%, while the bottom decile fell by an average of -6.75%, representing a top/bottom dispersion of 12.81%. By comparison, the top/bottom performance dispersion in December was 16.73%.
In the trailing 12 months ending January 2024, the top decile of FWC constituents gained +31.9%, while the bottom decile declined -19.0%, for a top/bottom dispersion of 50.9%. Approximately 60% of hedge funds produced positive performance in January.
“Hedge funds extended recent gains to begin 2024 as geopolitical risk escalated, complementing ongoing interest rate and inflation risk, with geopolitical risk spanning a wide range of issues including uncertainty regarding ongoing conflicts in Ukraine and Israel, as well as recent conflicts in Yeman and the Red Sea, uncertainty with regard to Taiwan and the upcoming US election,” says Kenneth Heinz, president of HFR. “Fixed income-based Relative Value Arbitrage led gains through corporate exposures, with additional positive contributions from Technology, Credit Arbitrage, and Market Neutral sub-strategies.
“Given the evolving and fluid geopolitical and macroeconomic environment, managers are actively and dynamically managing portfolio exposures and risk with a more intense focus on positive optionality, convexity and the increased potential for destabilising dislocations,” he adds. “With an increased sensitivity toward these risks, it is likely that institutions will be increasing commitments to funds opportunistically positioned to preserve capital while also monetizing exposures created by instability and volatility.”