Macro Continues to Boost hedge Fund Returns

Ongoing volatility and uncertainty in markets continues to help macro hedge funds boost investor returns in April – the third consecutive month the strategy has led returns, posting the second highest monthly return since inception – second only to March 2022.

While the HFRI 500 Fund Weighted Composite (FWC) Index, published by hedge fund research firm HFR, posted a decline of 0.9% in April (the investable index was +0.2%) macro funds posted gains of 5.05% according to the HFRI 500 Macro Index. This extends the strategy’s return for 2022 to 15.5%, easily the strongest performing subset of hedge funds.

Within this, April saw strong contributions from commodity, fundamental discretionary, and quantitative, trend-following strategies. Macro sub-strategy gains were led by the investable HFRI 500 Macro: Commodity Index, which rose 6.8%, extending the historic YTD 2022 gain to +39.8%. The HFRI 500 Macro: Systematic Diversified Index rose 5.85%, bringing YTD performance to +19.2%, while the HFRI 500 Currency Index was up 4.9%. The HFRI FOF (S) Risk Mitigation Index jumped 2.2% for the month and is +6.2% YTD.

HFR observes that while it was down on the month, the HFRI 500 FWC Index outperformed the Nasdaq Composite by 1340 basis points in April, extending the year-to-date outperformance to what HFR says is a historic 2145 basis points.

Larger funds outperformed smaller and mid-sized funds in April, as the HFRI Asset Weighted Composite Index gained 2.3% for the month, increasing its YTD return to 4.2%.

The top decile of the HFRI constituents gained an average of 8.9% in April, while the bottom decile declined by an average of 10.6% for the month, representing a top-bottom dispersion of 19.5 percent. Through the first four months of 2022, the top decile of the HFRI has surged an average of 34.8%, while the bottom decile has declined by an average of 22.2%.

Fixed income-based, interest rate-sensitive strategies posted mixed performance for the month as bonds and equities declined in a correlated manner as the US Federal Reserve prepared to increase interest rates to curb inflation. The investable HFRI 500 Relative Value Index declined 0.1% while the HFRI Relative Value (Total) Index fell 0.4%. RVA sub-strategy performance led by credit multi-strategy and corporate bond exposures, the HFRI 500 RV: Multi-Strategy Index advanced 1.45%, while the HFRI 500 RV: FI: Convertible Arbitrage Index added 0.3%.

“Hedge funds advanced in April as financial market volatility spiked while global equity and fixed income plunged in a record and correlated manner, with gains driven by further acceleration of a historic, negatively correlated surge in Macro strategies,” says Kenneth Heinz, president of HFR. “Accelerating the recent trends of the past few months, the surge in Global Macro performance occurred against a backdrop of geopolitical uncertainty and macroeconomic turmoil driven by rampant inflation, increasing interest rates and acceleration of the military conflict following the Russian invasion of Ukraine.

“Hedge fund managers and investors have effectively adapted to the current fluid market paradigm defined by extreme volatility, massive dislocations, and tremendous uncertainty, demonstrating tactical flexibility and operating as liquidity providers through the volatility,” he continues. “Institutional investors are prioritizing interest rate sensitivity and duration, inflation protection, capital preservation and volatility positive portfolio attributes, with minimal correlation to current equity market declines. Hedge funds which have demonstrated their ability to provide these characteristics are likely to lead industry growth and outperformance of equity markets through this unprecedented geopolitical and macroeconomic uncertainty.”