Macro Hit in October Amid General Hedge Fund Decline

Hedge funds posted declines in October according to research and indexation firm HFR, with Macro funds taking an outsized hit, largely thanks to losses in the systematic sector.

The HFRI Fund Weighted Composite Index (FWC) dropped 0.7%, while the HFRI Asset Weighted Composite Index fell 0.6% for the month. Performance gains of 0.6% in the HFRI Relative Value Index were more than offset by declines in the HFRI Macro (Total) Index, which fell 2.0%.

RVA strategy performance was led by the HFRI RV: FI-Sovereign Index, which advanced 1.0%, followed closely by the HFRI RV: FI-Asset Backed Index, which added 0.9%, increasing its year-to-date return to +8.4%. In contrast, Macro sub-strategy declines were led by the HFRI Macro: Systematic Diversified Index, which posted a large monthly decline of 3.3% on what HFR says was weakness in quantitative, systematic, trend-following exposures. Partially offsetting these declines, the HFRI Macro: Discretionary Thematic Index gained 0.15%.

The recently launched HFRI Multi-Manager/Pod Shop Index declined 0.46% for the month as managers positioned for election volatility, while the HFR Cryptocurrency Index advanced an estimated +3.5%, increasing its year-to-date return to +21.7%.

Performance dispersion contracted in October, as the top decile of the HFRI FWC constituents advanced by an average of +3.8%, while the bottom decile fell by an average of -7.3%, representing a top/bottom dispersion of 11.1%. By comparison, the top/bottom performance dispersion in September was 13.1%.

In the trailing 12 months ending October 2024, the top decile of FWC constituents gained +49.4%, while the bottom decile declined -12.2%, a dispersion of 61.1%. HFR says approximately 45% of hedge funds produced positive performance in October.

“Hedge funds posted mixed strategy performance in October as the US election rose to a dramatic crescendo to begin November, with performance most directly impacted by rising interest rates, corporate earnings reports which ranged widely from strong to weak, and small, broad-based equity market declines,” says Kenneth Heinz, president of HFR. “Hedged fixed income-based Relative Value Arbitrage strategies successfully navigated this environment, while directional Equity and Event strategies posted mixed performance.

“With clarity on the US election results, investors and managers are actively adjusting exposures to their expectations for priority policy shifts on international trade, manufacturing, immigration, energy, security with these changes resulting in significant impacts for monetary and fiscal policy, supply chains, M&A and geopolitical risk,” he continues. “It is likely that institutional investors seeking to maximise their exposure to these powerful trends and opportunities, while minimising risk and uncertainty, will increase exposure to hedge funds which have demonstrated both historically and recently through these market cycles, their strategy’s robustness as a mechanism for achieving these portfolio objectives in 2025.”