Macro Continues to Lose Out – HFR

Hedge funds managed to eke out a positive return in August, according to indexation and analysis firm HFR, however Macro strategies continued to suffer, undergoing their fourth consecutive monthly loss.

Overall performance was led by Equity Hedge and fixed income-based Relative Value Arbitrage strategies in August, as the HFRI Fund Weighted Composite Index (FWC) advanced +0.25% for the month. The HFRI Equity Hedge (Total) Index advanced an estimated 0.8%, to bring its year-to-date return to +9.0%, leading all strategy indices over the first eight months of the year. The HFRI Relative Value (Total) Index advanced an estimated +0.4%, led by the HFRI RV: Convertible Arbitrage Index, (+1.1%), and the HFRI RV: Corporate Index, (0.7%).

Macro declines were driven by losses in quantitative, trend-following CTA strategies. The HFRI Macro (Total) Index fell 1.1%, with losses led by the HFRI Macro: Systematic Diversified Index, (-2.9%), being partially offset by the HFRI Macro: Active Trading Index (+4.7%), which led all sub-strategy indices in August, and the HFRI Macro: Multi-Strategy Index (+0.5%).

Performance dispersion contracted, as the top decile of the HFRI FWC constituents advanced by an average of +5.5%, while the bottom decile fell by an average of -6.2%, representing a top/bottom dispersion of 11.7%. In July, the top/bottom performance dispersion in July was 14.6%, and in the trailing 12 months ending August 2024, the top decile of FWC constituents gained +36.8%, while the bottom decile declined -10.4%, representing a top/bottom dispersion of 47.2%. Approximately 60% of hedge funds produced positive performance in August, HFR says.

HFR has also added a new index, The HFRI Multi-Manager/Pod Shop Index, which is comprised of funds of various strategy types that utilise a multi-manager/pod structure, whereby fund capital is allocated to multiple independent investment teams. The Pods are autonomous but generally operate within certain portfolio management or risk guidelines, and capital is allocated to or from these Pods in a discretionary manner under the supervision of a CIO.

HFR says the index is the first focused exclusively on institutional multi-manager pod shop hedge funds, and the firm estimates that approximately $425 billion is currently managed in multi-manager funds. The new Index rose 1.6% in August, driven by a combination of equity and fixed income trading through the historic early August volatility spike.

“Hedge funds navigated the historic spike to financial market volatility to begin the month of August, with leadership from Equity Hedge, Relative Value and Multi-Manager Pod Shops as global equities posted steep declines to begin the month as investors positioned for global economic weakness, falling interest rates and continued geopolitical uncertainty,” says Kenneth Heinz, president of HFR. “Leading strategy areas were opportunistically positioned for the volatility, driven by a combination of technology stock weakness and unwind of the Japanese Yen carry trade, with these factors also driving mixed performance across a wide range of hedge fund sub-strategies. Multi-Manager Pod Shop hedge funds were among the leading areas of hedge fund performance, with these able to tactically adjust portfolio exposures through the volatility and weakness to drive gains for the month. “With expectations of volatility and the potential for destabilising dislocations remaining high through year-end, institutions which are interested in specialised, opportunistic access to these powerful trends are likely to allocate to managers which have demonstrated their strategy’s superior performance and robustness in recent months,” he concludes.