Hedge Funds Make It Eight in a Row

Hedge funds turned in a positive performance for the eighth month in a row according to the HFR Hedge Fund Index.

The HFRI Fund Weighted Composite Index (FWC) gained 1.7% in May, while the investable HFRI 500 Fund Weighted Composite Index advanced 1.5%, according to data released by HFR.

The FWC has gained 9.9% through the first five months of 2021, the strongest year-to-date performance through May since 1996 and the longest period of consecutive monthly gains since the index produced 15 consecutive positive months ending January 2018. In the trailing eight-month period, the FWC has surged 21.9%, representing the third strongest such period on record.

The performance dispersion of the underlying index constituents contracted again in May, as the top decile of the HFRI gained an average of +8.7%, while the bottom decile declined by an average of 3.1% for the month, representing a top-bottom dispersion of 11.8%. By comparison, the top-bottom dispersion in the first four months of the year averaged 17.0%.

Uncorrelated Macro funds led FWC main strategies, driven by discretionary thematic, fundamental commodity, and trend-following CTA strategies. The HFRI Macro (Total) Index gained 2.3% for the month, while the investable HFRI 500 Macro (Total) Index advanced 2.1%.

Macro sub-strategy performance was led by the HFRI Macro: Discretionary Thematic Index, which rose 3.7 % in May, the HFRI Macro: Multi-Strategy Index, which advanced 2.4%, and the HFRI Macro: Trend-Following Index, which added 2.3%.

The fixed income-based, interest rate-sensitive HFRI Relative Value (Total) Index gained 1.1% while the investable HFRI 500 Relative Value Index advanced 1.0% as signs of building inflationary pressures emerged in May. Sub-strategy performance was led by the HFRI RV: Yield Alternatives Index, which vaulted 4.1% for the month, and the investable HFRI 500 RV: Asset Backed Index, which advanced 1.4%.

Risk Premia and Liquid Alternatives also posted gains in May, led by commodity and Rates exposures. The HFR BSRP Commodity Index gained 2.9% for the month, while the HFR BSRP Rates Index advanced 2.7%. The HFRI-I Liquid Alternative UCITS Index was up 0.5%, driven by a 0.8%gain in the HFRI-I UCITS Macro Index. Risk Parity posted its third consecutive months of gains, as the HFR Risk Parity Vol 15 Index rose 4.3% for the month, following gains of 6.9% and 1.2%in April and March, respectively.

“Hedge funds advanced in May for the eighth consecutive month, extending the strongest calendar year start since 1996, posting gains despite increased equity market volatility and rising inflationary pressures,” says Kenneth Heinz, president of HFR. “Hedge funds have effectively transitioned exposures and positioning globally for a post-pandemic macroeconomic and geopolitical environment, encompassing both ongoing risks associated with virus variant and mutations, as well as evolving opportunities associated with a robust reopening across global and regional economies in coming months.

“Managers are currently navigating this environment with an emphasis and focus on inflation/interest rate sensitivity and equity volatility management,” he adds. “Funds which are able to demonstrate their specialised capabilities are likely to attract capital from leading global institutions seeking to manage these risks and access these opportunities.”