Hedge Funds Struggle Amidst Volatility, Unless They’re Discretionary

The volatile market conditions saw hedge funds struggle in March, with the HFRI Fund Weighted Composite Index falling 1.23% to sink into the red for the year at -0.49%, however the conditions appeared to play very much into the hands of discretionary traders, who continue to outperform their systematic brethren.

Macro funds managed to hold their collective head above water in March, the HFRI Macro (Total) Index eking out a 0.06% gain (it remains -0.09% for the year), but this was pretty much the only positive in a sea of red. The HFRI Equity Hedge (Total) Index dropped 2.1% (-1.41% year-to-date), while Event Driven (Total) was down 1.88% (-1.09%) and Relative Value (Total) was off just 0.08% (+1.7%).

Within the Macro performance, currency traders also struggled, the index dropping 0.6% but managing to cling to positive territory for the year at +0.08%, but there was brighter news elsewhere, with the Multi-Strategy Index rising 0.72% (+2.76%).

Perhaps the strongest indication of how certain strategies struggle in highly volatile conditions comes in the relative performance of systematic and discretionary macro traders, however, with the latter returning 1.9% on the month, while the former struggled at -0.7%. This gulf in performance is reinforced by the year-to-date numbers, the HFRI Macro Discretionary Thematic Index is +5.1%, while the systematic equivalent is struggling at -2.89%. Trend followers, who also tend to be systematic, struggled as well, albeit only by -0.34% in March for -1.32% year-to-date.

Elsewhere, the HFR Cryptocurrency Index fell sharply in March, by -6.3% as cryptocurrencies fell, reflecting a wider decline across the asset class and bringing year-to-date performance to -22.04%, however the new sub-strategy HFR Cryptocurrency-Quantitative Index was +2.5%. The HFRI Multi-Manager/Pod Shop Index was -0.6%, but is up 1.62% on the year.

Performance dispersion expanded in March, as the top decile of the HFRI FWC constituents advanced by an average of +6.6%, while the bottom decile fell by an average of -10.0%, representing a top/bottom dispersion of 16.6%. In February the dispersion was 14.6% and in the trailing 12 months ending March 2025, it was 47.9%. HFR says approximately 40% of hedge funds produced positive performance in March.

“Hedge funds navigated the historic, tariff driven surge in financial market volatility in March and early April, with gains in uncorrelated Macro strategies and steep declines in equity markets, driven down by the large cap technology sector,” says Kenneth Heinz, president of HFR. “With volatility and declines accelerating into early April, hedge funds continued to actively navigate the market turmoil, with the HFRX Global posting a decline of -0.62% on April 3, while the HFRX Absolute Return Index fell -0.36% on the same day.

“With the violent surge in risk off sentiment and expectations for a continuation of the uncertainty, institutions and investors are likely to increase allocations to hedge funds which have provided defensive outperformance through the current volatility and potential dislocations,” he concludes.