Hedge Funds Power Ahead in April: HFR

Hedge funds maintained recent momentum with a seventh straight positive month and the strongest start to a year since 1999.

According to indexation, analysis and research firm HFR, strong corporate earnings and optimism over the opening up of the US economy drove the gains, with the HFRI Fund Weighted Composite Index (FWC) gaining 2.7 percent in April, while the investable HFRI 500 Fund Weighted Composite Index advanced 2.3 percent.

The HFRI FWC is +8.7 percent through the first four months of 2021, the strongest YTD performance through April since 1999 and the longest period of consecutive monthly gains since the index produced 15 consecutive months ending January 2018. In the trailing seven-month period, the HFRI FWC has surged +20.5 percent, representing the second strongest such period on record, as only the seven-month period ending March 2000 (+24.1 percent) was stronger.

The performance dispersion of the underlying index constituents contracted in April, as the top decile of the HFRI gained an average of +10.3 percent, while the bottom decile declined by an average of -1.8 percent for the month, representing a top-bottom dispersion of 12.1 percent. By comparison, the top- bottom dispersion in March was 15.9 while February saw dispersion of 20.2 percent.

While performance was strong across equity segments, the uncorrelated macro segment also did well, The HFRI Macro (Total) Index jumped 2.7 percent for the month, while the investable HFRI 500 Macro Index was up +2.3 percent. Macro sub-strategy performance was led by the Commodity Index, which surged +5.4 percent and the Systematic Diversified/CTA Index, which added 3.0 percent for the month.

Fixed income indices performed decently, with the Relative Value (Total) Index rising 1.5%, however, as has become the norm, this was dwarfed by the Cryptocurrency Index, which soared 50.6% for +261.9% year-to-date.

“Through the seven consecutive months of gains, hedge funds have navigated multiple market cycles (both positive and negative, including a new US political administration, unprecedented fiscal stimulus initiatives, additional virus mutations/variants, and a sharp increase in heavily-shorted, deep value equities driven by retail trading platforms,” observes Kenneth Heinz, president of HFR. “It is likely that these powerful macroeconomic and geopolitical trends and risks will continue to evolve throughout 2021, creating opportunities for institutions to allocate to fund managers that are well positioned for this environment and that have demonstrated performance success through recent periods of volatility.”