Macro Posts Rare Decline, but Hedge Funds Gain in November
Posted by Colin Lambert. Last updated: December 9, 2022
While the strong run of positive returns from the Global Macro sector came to an end in November, hedge funds generally had a good month according to indexation firm HFR.
The investable HFRI 500 Fund Weighted Composite Index was +0.8% for the month, with directional Equity Hedge and interest rate sensitive Relative Value Arbitrage strategies leading industry performance. The HFRI Fund Weighted Composite Index was +0.95%, paring its year-to-date decline to -4.1 percent.
Macro strategies posted their first decline since July, paring strong year-to-date performance on weakness in quantitative, trend-following strategies. The investable HFRI 500 Macro Index fell 3.7%, meaning it is now +13.1% on the year, while the HFRI Macro (Total) Index fell 2.7%. Macro sub-strategy declines were led by the HFRI Macro: Systematic Diversified Index, which was -5.2%, while the HFRI Macro: Active Trading Index fell 4.6%. These declines were partially offset by the HFRI Macro: Discretionary Thematic Index, which gained 1.2%. Despite the decline, the HFRI 500 Macro: Commodity Index leads all sub-strategies through the first 11 months of the year, up an impressive 34%.
The HFR Cryptocurrency Index dropped 13.5%, as cryptocurrencies plunged on the collapse of FTX, as well as other cryptocurrency platforms. The Index is now down 52.5% in 2022, although it was up 240% in 2021.
Fixed income-based, interest rate-sensitive strategies also advanced in November, as interest rates posted sharp declines as generational inflationary pressures showed early signs of easing, while investors positioned for the US Federal Reserve to moderate the pace of future interest rate increases. The investable HFRI 500 Relative Value Index gained 1.65%, while the HFRI Relative Value (Total) Index added 1.1%.
The dispersion of performance widened slightly in November, as the top decile of the HFRI constituents advanced by an average of 12.8%, while the bottom decile fell by an average of -8.7%, representing a top/bottom dispersion of 21.5%, up from 18.6% in October. Through the first 11 months of the year, the top decile of the HFRI has surged an average of +40.1%, while the bottom decile has declined by an average of -30.1%, representing a top/bottom dispersion of 70.2%. Approximately two-thirds of hedge funds posted positive performance in November.
“Hedge funds extended strong fourth quarter gains through November as managers navigated intense cryptocurrency-induced volatility, as well as extensions of the recent sharp reversals in equity and fixed income markets, with leadership directional equity, interest rate sensitive and risk parity strategies,” says Kenneth Heinz, president of HFR. “Directional Equity and uncorrelated Macro posted dramatic divergences for the month, with Equity Hedge posting the strongest gain since February 2021, while Macro posted the sharpest decline since February 2018.
“In sharp contrast to one month ago, political risks have moderated on greater clarity from US and European elections, while macroeconomic risks have shifted to a paradigm of oscillating between concerns about a sharp slowdown in the global economy, while generational inflationary pressures continue to represent significant risks to financial markets,” he continues. “With increased risk associated with recessionary weakness, institutional investors are likely to allocate to funds which have delivered strong performance through the dramatic dislocations and volatility which have defined 2022 and are likely to extend into 2023.”