Hedge Funds Have Strong July
Posted by Colin Lambert. Last updated: August 18, 2023
Hedge funds reinforced a strong June performance – the best returns for over two years – with continued gains in July, according to the HFRI hedge fund indices.
HFR, which calculates and publishes the indices, says its investable HFRI 500 Fund Weighted Composite Index advanced an estimated 1.7% in July, following the strongest monthly gain since February 2021 in June. The HFRI Fund Weighted Composite Index (FWC) also advanced in July, gaining an estimated 1.5%, driven by Event Driven and Equity Hedge strategies.
Macro funds also did OK, led by Commodity and fundamental Discretionary Thematic strategies, the HFRI Macro (Total) Index gained 0.5% for the month, while the investable HFRI 500 Macro Index added an estimated 0.1%. The HFRI Macro: Commodity Index jumped +3.8% in July, while the HFRI 500 Macro: Discretionary Thematic Index advanced 2.2 %.
Fixed income-based, interest rate-sensitive strategies also advanced in July, as the Federal Reserve raised interest rates and inflationary pressures eased, while regional banking volatility subsided. The HFRI 500 Relative Value Index gained an estimated 1.0%, while the HFRI Relative Value (Total) Index advanced 0.9% (also estimated). RV sub-strategies were led by the HFRI 500 RV: FI-Sovereign Index, which gained 4.3%, and the HFRI 500 RV: Asset Backed Index, which added 2.0 %.
Performance dispersion ticked lower again, as the top decile of the HFRI FWC constituents advanced by an average of +9.3%, while the bottom decile fell by an average of -3.8%, representing a top/bottom dispersion of 13.1% for the month. By comparison, the top/bottom performance dispersion in June was 14.1%. Through the first seven months of the year, the top decile of FWC constituents gained 30.3%, while the bottom decile declined 12.8%, a top/bottom decile of 43.0%. Approximately 70 percent of hedge funds posted positive performance in July.
“Hedge funds extended the June surge through July, with powerful gains concentrated in Event Driven and Equity Hedge pacing broad based gains in less correlated strategies, with similar trends driving performance, including technology, financials and M&A transactional finance exposures,” says Kenneth Heinz, president of HFR. “While gains were driven by these dynamic exposures, industry performance was strong across-the-board, as all four main strategies advanced for the month.
“Powerful technology and AI trends were complemented by a strong equity beta tailwind as banks recovered from the recent volatility while inflationary pressures eased, increasing expectations for a stronger than anticipated second half of 2023, including pricing in a near term end of the interest rate raising cycle,” he adds. “While these trends have been favourable in the short term, institutional investors looking to access to these specialised, powerful trends while remaining both defensive and opportunistic through periods of volatility are likely to allocate and expand commitments to managers which have demonstrated their capacity and capabilities through the early stages of this transformative market dynamic.”