Macro Stands Out as Hedge Funds Struggle in September
Posted by Colin Lambert. Last updated: October 11, 2023
Not for the first time in the last two years, Macro strategies have proved their worth in a time of higher risk, providing strong returns amidst a broader struggle for hedge funds in September.
According to hedge fund indexation firm HFR, the HFRI Institutional Macro Index jumped 3.1% in September – a vast improvement on the broader HFRI Fund Weighted Composite Index, which fell 0.2% – although this was itself a significant outperformance on equity markets generally. The Macro performance was led by commodity, trend-following CTA and multi-strategy exposures.
The investable HFRI 500 Macro Index also jumped 2.9%, and the HFRI Macro (Total) Index added 2.3%. Leading sub-strategy performance, the HFRI 500 Macro: Multi-Strategy Index was up at estimated 4.45%, while the HFRI Macro: Commodity Index also added 2.75%. Quantitative, trend-following CTA strategies also surged in September, with the HFRI 500 Macro Systematic Diversified Index advancing 3.2% for the month.
It was also a decent month for fixed income strategies, the HFRI Institutional Relative Value Index gained 0.6%, while the HFRI Relative Value (Total) Index added an estimated 0.3%. Larger funds extended their outperformance of smaller funds with the HFRI Institutional Fund Weighted Composite Index posting a gain of 0.9%, while the HFRI Asset Weighted Index was up 0.77%. Performance dispersion rose slightly, as the top decile of the HFRI FWC constituents advanced by an average of +6.5%, while the bottom decile fell by an average of -7.1%, representing a top/bottom dispersion of 13.6 % for the month. The top/bottom performance dispersion in August was 13.0%.
Through the first nine months of the year, the top decile of FWC constituents gained +24.3%, while the bottom decile declined -13.2%, representing a top/bottom dispersion of 37.5%. HFR says approximately half of hedge funds posted positive performance in September.
“Macro hedge funds and the industry’s largest firms led performance in September as both bonds and equities posted steep declines in a correlated manner, interest rates hit recent highs and inflationary pressures remained strong, while near term prospects for economic growth weakened,” observes Kenneth Heinz, president of HFR. “Macro hedge posted strong gains across both quantitative, fundamental and commodity focused strategies, with the industry’s largest funds leading gains as asset weighted composites posted positive performance for the month.
“In addition to Macro, interest rate sensitive, fixed income based Relative Value Arbitrage strategies also gained in September, demonstrating strong defensive positioning and opportunistic trading in a month where not only did interest rates rise sharply, but volatility increased while equities posted concurrent, sharp declines,” he continues. “Led by the industry’s largest funds, managers remain aggressive and opportunistically positioned for acceleration of this financial market volatility, with an increased likelihood of destabilising dislocations.
“Institutions interested in a combination of opportunistic exposure to these powerful trends, as well as defensive capital preservation through the volatility, are likely to increase allocations to managers which have generated strong performance through these recent market headwinds,” Heinz concludes.