Hedge Funds Up in November: HFR

Macro strategies reinforced their diversification offering to investors by struggling in November amidst a broader positive performance by hedge funds.

According to analytical and indexation firm HFR, Macro strategies declined as interest rates and commodities fell while risk tolerance increased, with the HFRI Macro (Total) Index falling an estimated 1.6% for the month. Macro sub-strategy declines were led by quantitative, trend following CTA strategies, with the HFRI Macro: Systematic Diversified Index falling 3.5%. Partially offsetting these declines, HFRI Macro: Discretionary Thematic Index gained 1.5%, and the HFRI Macro: Active Trading Index advanced 1.2 %.

The broad HFRI Fund Weighted Composite Index finished the month up an estimated 2.2%, the strongest monthly gain since January 2023 and the fifth strongest return in the trailing three-year period – the HFRI 500 also advanced 1.8%.

Equity Hedge funds, which invest long and short across specialised sub-strategies, led November strategy performance, with Quantitative Directional, Technology, Fundamental Value, and Healthcare leading EH sub-strategy gains. Unsurprisingly, given the performance of cryptocurrencies in November, the HFR Cryptocurrency Index jumped 8.2%.

Fixed income-based, interest rate-sensitive strategies also gained in November, as interest rates declined, and investors positioned for the end of the hiking cycle. The HFRI Relative Value (Total) Index advanced an estimated 1.5%, led by sovereign bond and multi-strategy exposures.

Performance dispersion rose sharply in November, as the top decile of the HFRI FWC constituents advanced by an average of +12.9%, while the bottom decile fell by an average of -6.5%, representing a top/bottom dispersion of 19.4% for the month. By comparison, the top/bottom performance dispersion in October was 12.9%. Through the first eleven months of the year, the top decile of FWC constituents gained +30.9%, while the bottom decile declined -16.5%, representing a top/bottom dispersion of 47.4%. Nearly seventy percent of hedge funds produced positive performance in November.

“Hedge funds surged in November, led by directional Equity Hedge and Event-Driven strategies, as powerful risk-on sentiment dominated financial markets driven by an unexpected decline in inflation, falling bond yields, an uptick in M&A, and broad-based equity market gains,” says Kenneth Heinz, president of HFR. “Strong performance was most pronounced in high equity and credit beta sub-strategies, including Shareholder Activist, Special Situations, Technology, and Quantitative Directional exposures.

“The outlook for hedge fund performance into 2024 continues to improve with higher nominal levels of bond yields, acceleration of powerful AI-driven technology trends, expanding cryptocurrency applications, improving economic outlook and the potential for interest rate declines,” he continues. “With all of these trends coming together heading into 2024, institutions are likely to increase allocations to leading managers which provide opportunistic access to these trends, while also providing defensive capital preservation against expected portfolio volatility, with these driving industry growth through the new year.”