Macro Hedge Funds Still Going Strong
Posted by Colin Lambert. Last updated: October 11, 2022
As has been the case for much of this year, macro hedge funds had another strong month in September, amidst another month of tougher conditions for the much of the rest of the industry.
The investable HFRI 500 Fund Weighted Composite Index, produced by indexation firm HFR, fell 1.5% for the month, with declines in US equities of over 700 basis points driving equity hedge, event driven and relative value strategy losses that more than offset the Macro gains.
Macro strategies accelerated strong 2022 performance as the Dollar surged, with performance led by quantitative, trend-following CTA strategies and currency-focused exposures. Led by the HFRI 500 Macro: Systematic Diversified Index, which rose 4.4% in September, the investable HFRI 500 Macro Index jumped 2.75% for the month, extending year-to-date performance to +17.45%, leading all strategy indices.
The HFRI Macro (Total) Index was +1.7% in September, led by the HFRI Macro: Currency Index, which advanced 2.3% for the month. Through the first three quarters of 2022, Macro sub-strategy gains have been led by the HFRI 500 Macro: Commodity Index, which has surged 43.9%, and the HFRI 500 Macro Systematic Diversified Index, which has jumped 22.7%.
The dispersion of hedge fund performance widened in September, as the top decile of the HFRI constituents provided an average performance of +6.4%, while the bottom decile fell by an average of -14.3%, representing a top/bottom dispersion of 20.7%. By comparison, the top/bottom dispersion was only 14.5% in August.
Through the first nine months of the year, the top decile of the HFRI has surged an average of 38.0%, while the bottom decile has declined by an average of 35.3%, representing a top/bottom dispersion of 73.3%. Approximately one-quarter of hedge funds posted positive performance in September.
Fixed income-based, interest rate-sensitive strategies posted mixed performance for the month, with gains in volatility exposures offset by declines in yield alternatives, as the Federal Reserve continued to raise interest rates to slow inflation. The HFRI Relative Value (Total) Index declined 1.4% for the month, while the investable HFRI 500 Relative Value Index fell 1.05%. The HFRI 500 RV: Volatility Index gained 1.5%, while the HFRI RV: Yield Alternative Index fell 8.6%.
“Financial market volatility accelerated in September, with the additional catalyst of dislocations in the currency markets adding to continued equity market declines, rising interest rates, and generational inflation,” says Kenneth Heinz, president of HFR. “Through the first three quarters of 2022, macro hedge funds opportunistically navigated the volatility surge to extend record outperformance of equity markets, while the overall hedge fund industry produced the strongest outperformance of equity markets in 20 years.
“Currency-focused and quantitative, trend-following CTA strategies led performance as interest rates increased and the US dollar surged against the euro, Japanese yen and British pound sterling, with strong gains in these strategies partially offsetting weakness in directional equity and event driven strategies,” he continues. “Macroeconomic and geopolitical risks continue to accelerate into year-end and are expected to drive extreme volatility and the potential for destabilising dislocations. Managers which have demonstrated their ability and strategy robustness in navigating these dynamic, fluid, and volatile conditions are likely to attract capital from leading global financial institutions.”