Macro Hedge Funds Continue to Lead the Way: HFR
Posted by Colin Lambert. Last updated: April 13, 2022
According to hedge fund analysis firm HFR, macro hedge funds surged to lead industry-wide gains in March, completing a record first quarter by again posting sharp returns as financial market volatility was exacerbated by inflation, rising interest rates and expectations for continued increases, as well as the escalation of the military conflict in Ukraine.
The investable HFRI 500 Macro Index rose 6.25% in March, for a +10.0% return on the first quarter, with strong contributions from commodity, fundamental discretionary, and quantitative, trend-following strategies. The investable HFRI 500 Macro Index rose 6.1%, the highest monthly return since inception, bringing first quarter performance to +10.0%, which is also a record quarter. The HFRI Macro (Total) Index was up 5.5% for the month.
Macro sub-strategy gains were led by the investable HFRI 500 Macro: Commodity Index, which surged 18.1% in March, also a record monthly gain, as commodities spiked on inflation fears and supply disruptions tied to the Russian invasion of Ukraine; the Index produced a quarterly record return of 35.7%.
Quantitative, trend-following Macro sub-strategies also led as the HFRI 500 Macro: Systematic Diversified Index spiked 6.7% for the month, also a record monthly gain, bringing the first quarter return to +11.3%.
The investable HFRI 500 Fund Weighted Composite Index advanced 2.4% for the month, extending its first quarter return to +0.85%, topping the decline of the Nasdaq by nearly 1000 basis points.
The broad HFRI Fund Weighted Composite Index (FWC) added 1.9% in March, according to HFR, pushing it into positive territory year-to-date after a tough January.
Through the quarter, larger funds outperformed smaller and mid-sized funds, with the HFRI Asset Weighted Composite Index jumping 3.5% in March and leading all top-level composite indices for the quarter with a +3.0% return.
The performance dispersion of the underlying HFRI index constituents expanded in March, with the top decile gaining an average of 12.8%, while the bottom decile declined by an average of 6.0%, representing a top-bottom dispersion of 18.8%. Through the first quarter, the top decile of the HFRI has surged an average of 24.3%, while the bottom decile has declined by an average of 15.4%.
Fixed income-based, interest rate-sensitive strategies posted mixed performance for the month as interest rates increased led by shorter dated maturities, with shorter dated yields rising above longer dated as the US yield curve inverted. Both the investable HFRI 500 Relative Value Index and the HFRI Relative Value (Total) Index gained 0.4% in March, with RVA sub-strategy performance led by yield alternatives and volatility funds. The HFRI RV: Yield Alternatives Index and HFRI RV: Volatility Index each advanced 1.9% for the month.
The HFRI Diversity Index posted a gain of 1.2% in March, while the HFRI Women Index advanced 0.55%.
“Global macro hedge funds, led by fundamental, discretionary commodity, and quantitative, trend- following Macro, posted record gains in March to conclude a historic quarter as financial market volatility spiked driven by generational inflation, rising short term interest rates leading to an inverted yield curve, and acceleration of the military conflict following the Russian invasion of Ukraine,” says Kenneth Heinz, president of HFR. “The combination of these two powerful market dynamics of inflation/interest rates and historic geopolitical risk has contributed to massive dislocations across commodity, equity, and fixed income markets and unprecedented macro and geopolitical uncertainty, with managers navigating tremendous and fluid volatility.
“As with the prior months, many managers, especially global macro managers, have clearly demonstrated their tactical flexibility to respond to these rapidly shifting market cycles and conditions,” he adds. “These strategies are likely to attract institutional capital in coming quarters by not only leading industry performance, but generating defensive capital preservation and significant outperformance of equity markets through this unprecedented geopolitical and macroeconomic uncertainty.”