Hedge Funds Start 2025 Well; Macro and Currency Included

Hedge funds had a strong start to 2025 according to indexation and analytics firm HFR, which reports its HFRI Fund Weighted Composite Index rose 1.42%.

Within this, Macro funds had a good start, including currency managers, the HFRI Macro (Total) Index rose 0.97% in January, helped by its component Currency Index, which was up 1.58%. The Multi-Strategy Index, also a sub-component of the Macro (Total) Index, rose by 2.46% to lead the way – the Discretionary Thematic Index matched Currency at +1.58%.

Best overall performer was the Equity Hedge Index at +2.12%, HFR’s recently-launched Multi-Manager/Pod Shop Index also started the year well, rising 1.9%.

Performance dispersion contracted slightly in January, as the top decile of the HFRI FWC constituents advanced by an average of +7.9%, while the bottom decile fell by an average of -4.1%, representing a top/bottom dispersion of 12.0% for the month. By comparison, the top/bottom performance dispersion in December 2024 was 13.2%. In the trailing 12 months ending January 2025, the top decile of FWC constituents gained +41.4%, while the bottom decile declined -9.9%, representing a top/bottom dispersion of 51.3%. Nearly 80% of hedge funds produced positive performance in January, HFR says.

“Hedge funds posted gains to begin 2025, effectively navigating a challenging environment dominated by volatility in the technology sector, as well as announcements of executive orders and implementation of new policies effecting a wide range of industries including trade/tariffs, immigration, energy and many others,” observes Kenneth Heinz, president of HFR. “Despite the volatility, directional Equity Hedge strategies led broad-based strategy gains for the month, with contributions from Fundamental, Quantitative and Shareholder Activist sub-strategy exposures.

“Many financial market risks have shifted and evolved but not fallen, with geopolitical risk shifting from election outcomes and military conflicts to policy changes and conflict resolution; inflation and interest rate risks remain, while expectations for continued growth in AI-fueled large cap technology are in some cases tempered by high capital expenditures and intense global competition,” he continues. “Managers have been positioning for this dynamic environment for several months, with intensive positioning since the US election in November, and it is likely that managers are positioned for acceleration of these policy changes throughout H1 2025.

“Investors are likely to increase allocations to managers which have effectively demonstrated their strategy’s specialised ability to navigate these policy changes and rapidly shifting market cycles which create both risk and opportunities,” Heinz concludes.