Macro Funds End Strong 2022 Well Amidst Mixed Hedge Fund Performance
Posted by Colin Lambert. Last updated: January 11, 2023
Macro strategies reinforced their dominance of hedge fund performance in 2022 with another good return in December, in spite of broader performance declines.
Indexation firm HFR says its investable Macro Index rose 0.42% in December, to end the year +14.8%. Driven by fundamental commodity and quantitative, trend-following CTA strategies, the HFRI Macro (Total) Index gained 9.3% for 2022 and the HFR FOF (S) Risk Mitigation Index gained 0.67%in December, bringing the 2022 return to +6.42%.
Macro sub-strategy performance for 2022 was led by the HFRI 500 Macro: Commodity Index, which surged 38.7%, and the HFRI 500 Macro: Systematic Directional Index, which jumped 16.5% for the year.
Fixed income-based, interest rate-sensitive strategies also advanced in December, as interest rates continued to rise, while investors positioned for further economic weakness; the investable HFRI 500 Relative Value Index rose 0.53%for the month, while the HFRI Relative Value (Total) Index posted a narrow decline of 0.05%. For the full year, the HFRI 500 Relative Value gained 0.97%.
The good news from the Macro and fixed income space was in contrast to a tougher year generally for funds. The broader HFRI 500 Fund Weighted Composite Index fell 0.38% in the last month of the year, bringing its full year decline to -4.48%.
The performance dispersion narrowed considerably in December, as the top decile of the HFRI constituents returned an average of +6.1%, while the bottom decile fell by an average of -7.8%, representing a top/bottom dispersion of only 13.9%. By comparison, the top/bottom dispersion was 24.8% in November.
For the year, the top decile of the HFRI has risen an average of +39.1%, while the bottom decile has declined by an average of -33.0%, representing a top/bottom dispersion of 72.1%. HFR says approximately half of hedge funds posted positive performance in December.
“Extending the powerful trends which have dominated 2022, hedge funds again navigated intense financial market volatility and topped equity market declines in December, once again led by inversely correlated Macro strategies,” says Kenneth Heinz, president of HFR. “Fixed income-based Relative Value also gained for the month and full year. Also extending a dominant trend for 2022, larger funds exhibited strong, impressive, defensive outperformance, with much of this concentrated in Macro and large credit multi-strategy exposures.
“Looking into 2023, macroeconomic and geopolitical risks remain at extreme levels, including dislocation risks associated with increasing interest rates to slow generational inflation while, at the same time, risks associated with broad-based economic slowing and the ongoing Russian war in Ukraine,” he continues. “Against this backdrop, leading institutional investors are likely to increase exposure to funds which have successfully navigated this extreme volatility in 2022, targeting the twin portfolio objectives of continued capital preservation, as well as participation in opportunities created by this volatility and dislocations across asset classes.”