Macro Stars as Hedge Funds Extend Good Run

Hedge funds extended their good run to start 2024 by again publishing positive returns in March, led by Macro strategies, which posted their best month since March 2022 and the strongest quarter in over 20 years.

According to hedge fund indexation and analysis firm HFR, uncorrelated Macro strategies led industry-wide gains in both March and for Q1 2024, as investors positioned for moderating inflation, falling interest rates, and an improving economic outlook, despite significant ongoing geopolitical uncertainty.

The HFRI Macro (Total) Index jumped an estimated 3.9%, bringing Q1 performance to +6.9%, the strongest calendar quarter since Q2 2003, while Macro sub-strategy gains were led by the HFRI Macro: Systematic Diversified Index, which jumped 4.5% in March and was +10.1% for the quarter, its strongest calendar quarter since the last quarter of 1999. The HFRI Macro: Trend Following Index also produced strong March performance, posting a 4.3% return to increase its Q1 return to +8.7%, while the HFRI Macro: Multi Strategy Index added 3.9%for the month. Risk Parity strategies also generated strong performance in March, with the HFR Risk Parity Vol 15 Index surging +5.4%.

industry-wide gains were driven by trend-following CTAs, Energy, Multi-Strategy, Healthcare, and Cryptocurrency strategies, expanding the five-month return for the HFRI Fund Weighted Composite Index (FWC) to +11.1%, the strongest such return since the five-month period ending April 2021.

The HFRI FWC rose an estimated +2.5%for the month, and the HFRI 500 FWC Index jumped 2.8%. Specialised cryptocurrency funds, which are separate from the HFRI Index, also surged in March as the HFR Cryptocurrency Index leapt 19.1%.

Performance dispersion declined in March, as the top decile of the HFRI FWC constituents advanced by an average of +9.5%, while the bottom decile fell by an average of -2.1%, representing a top/bottom dispersion of 11.6% for the month. By comparison, the top/bottom performance dispersion in February was 15.8%. In the trailing 12 months ending March 2024, the top decile of FWC constituents gained +45.2%, while the bottom decile declined -10.0%, a top/bottom dispersion of 55.2%. HFR says approximately 85% of hedge funds produced positive performance in March.

Fixed income-based, interest rate-sensitive strategies also gained in March as investors positioned for moderating inflation, falling interest rates, and improving economic outlook, with the HFRI Relative Value (Total) Index advancing an estimated 1.0% to bring its Q1 return to +2.5%.

“Hedge funds generated robust performance in March to conclude its strongest Q1 since 2021, with positive contributions from CTAs, Energy, Multi-Strategy, Healthcare, and Cryptocurrency exposures, and as uncorrelated Macro posted its highest quarter in over 20 years,” says Kenneth Heinz, president of HFR. “In contrast to most of 2023, the macroeconomic environment in Q1 was dominated by expectations for falling inflation and interest rates, and improving expectations for economic growth, despite ongoing, fluid, uncertain and potentially volatile elevated geopolitical risk.

“Managers remain keenly focused on this tension between falling macroeconomic risk and rising geopolitical risk in 2024, with potential for sharp reversals, volatility and dislocation driven by either of these powerful trends,” he adds. “Institutional investors interested in opportunistic exposure to these trends while also insulating portfolios from potential volatility are likely to allocate or increase exposure to funds which have demonstrated their strategy’s robustness and veracity over the recent market cycles.”