Hedge Funds Positive in September: HFR

Hedge funds gained in September, navigating a volatile month paced by sharp declines in global equities and fixed income, as inflationary pressures continued to mount.

The HFRI Fund Weighted Composite Index (FWC) advanced 0.13% in September, topping declines in equities by over 500 basis points, while the investable HFRI 500 Fund Weighted Composite Index gained 0.24%, according to data released today by indexation, analysis and research firm HFR.

The performance dispersion of the underlying index constituents widened in September, as the top decile of the HFRI gained an average of 9.10%, while the bottom decile declined by an average of 6.15% for the month, representing a top-bottom dispersion of 15.25% compared to 11.45% in August. In the trailing 12 months, the top decile of the HFRI jumped an average of 81.4%, while the bottom decile declined by an average of 7.0%.

Leading all main strategies for the month, the fixed income-based, interest rate-sensitive HFRI Relative Value (Total) Index gained 1% as interest rates spiked on expectations for increased stimulus spending and decreased bond purchases by the US Federal Reserve, as well as rising inflationary pressures. The investable HFRI 500 Relative Value Index advanced 0.9% for the month. Sub-strategy performance was led by the HFRI RV: Yield Alternative Index, which returned +5.5 percent, while the investable HFRI 500 RV: Volatility Index added 0.8%.

Uncorrelated Macro strategies also posted gains in September as rates increased, energy prices climbed, and equities fell. The HFRI Macro (Total) Index gained 0.5% while the investable HFRI 500 Macro (Total) Index advanced 1.2%. Macro sub-strategy performance was led by the HFRI Macro: Commodity Index, which surged 5.2 %, while the HFRI Macro: Currency Index gained 1%.

Risk Premia strategies posted mixed performance in September, as gains in commodity exposures were offset by declines in rates. The HFR BSRP Commodity Index advanced 2.94% for the month, while the HFR BSRP Rates Index fell 3.4%. The HFRX Global Hedge Fund Index fell 0.38%, led by a decline of -1.2% in the HFRX Macro Index.

“Hedge funds posted broad-based gains in September across fixed income, commodity and event-driven strategies, which were inversely-correlated to steep declines across global equity and fixed income markets which were driven by concerns regarding rising inflation, excessive government spending and debt burden associated with the spending,” says Kenneth Heinz, president of HFR. “Given the magnitude of equity & bond declines, the positive outperformance represents one of the most impressive performances of the HFRI in recent history.

“In contrast to prior periods in which hedge fund performance was driven by a high beta, risk-on market environment, the current fluid macroeconomic environment requires greater specialisation, tactical flexibility and strategic portfolio execution, all of which were exhibited in September,” he continues. “Institutions interested in both efficient capital preservation and opportunistic exposures to these dynamic factors are likely to increase their exposure to the broad range of funds which have demonstrated the robustness and resiliency of their strategies, navigating challenging periods of volatility like we observed in September.”