Macro Again in the Driving Seat as Hedge Funds Mixed in April
Posted by Colin Lambert. Last updated: May 8, 2024
Macro hedge funds continued their very strong start to 2024 in April, with indexation and analytical firm HFR reporting its asset-weighted Macro Index rose 2.6% in the month for a +9.8% return year-to-date.
Overall, HFR says its Asset Weighted Composite Index was +0.9%, highlighting the better performance of larger funds, while the HFRI Fund Weighted Composite Index, which is equally weighted, declined 0.6%.
The Macro performance compensated for a tougher month for equity focused funds, the HFRI Equity Hedge (Total) Index fell an estimated 1.6% for the month, lowering the year-to-date return to +3.4%. The equal-weighted HFRI Macro (Total) Index was up 1.5%, while Macro sub-strategy gains were led by the HFRI Macro: Commodity Index, which jumped 3.0%, while the HFRI Macro Discretionary Thematic Index rose 2.1%. The HFRI Macro: Trend Following Index advanced 1.3%.
Fixed income-based, interest rate-sensitive strategies were also in positive territory in April, albeit slightly, with the HFRI Relative Value (Total) Index rising +0.3 percent for the month to bring its year-to-date performance to +2.8%.
Performance dispersion expanded in April, as the top decile of the HFRI FWC constituents advanced by an average of +5.9%, while the bottom decile fell by an average of -8.4%, representing a top/bottom dispersion of 14.3%. By comparison, the top/bottom performance dispersion in March was 11.3%.
In the trailing 12 months ending April 2024, the top decile of FWC constituents gained +38.2%, while the bottom decile declined -11.0%, representing a top/bottom dispersion of 49.2%. Highlighting the mixed nature of performance in April, HFR says approximately half of hedge funds produced positive performance.
“Hedge funds posted impressive gains in April led by Macro strategies and the industry’s largest, most established funds as financial markets experienced a crucial inflection point, reversing from the dominant risk-on sentiment in Q1 to a powerful risk-off sentiment as investors positioned for persistent inflations, elevated interest rates, and continued extreme levels of geopolitical risk,” says Kenneth Heinz, president of HFR. “The performance of Macro funds is both strong and impressive in that Macro contains many of the industry’s largest, most capital concentrated funds. Historically, Macro has the lowest correlation to broader equity markets (in the case of April, negatively correlated with equity market declines) and that Macro posted one of its strongest quarters in 20 years in Q1 2024, through an environment which was dominated by the complete opposite of risk sentiment than the trends in early Q2.
“This demonstrated positive-optionality and volatility-positive positioning is likely to continue to attract capital from institutional investors looking for exactly what Macro is providing through the recent market cycles – specialised participation in powerful gains, portfolio protection/negative correlation in risk-off environments,” he continues. “With both macroeconomic and geopolitical uncertainty accelerating through mid-year, Macro represents an ideal portfolio allocation for institutions navigating these volatile and dynamic financial market conditions.”