Macro Still on the Up Amidst Wider Hedge Fund Gains

The extended run of positive months for Macro hedge funds continued in October according to indexing and analytical firm HFR, thus far the strategy has had one down month in 2022.

Overall hedge funds shook off losses in recent months with the investable HFRI 500 Fund Weighted Composite Index rising 2.1% in October. That gains were led by directional Event Driven and Equity Hedge strategies.

Macro funds extended 2022 gains by 1.4%, extending year-to-date performance to +18.4%. The HFRI Macro (Total) Index also added 0.95% in October, with Macro sub-strategy gains being led by the HFRI 500 Macro: Multi-Strategy Index, which rose 2.7%, and the HFRI 500 Macro: Commodity Index, which added 1.8% to extend its 2022 return to +43.7%, leading all sub-strategies through the first 10 months of 2022.

Fixed income-based, interest rate-sensitive strategies posted mixed performance as the US Federal Reserve prepared to raise interest rates, with gains in sovereign fixed income and convertible arbitrage exposures more than offset by declines in volatility, and fixed income corporate and asset backed sub-strategies. Both the investable HFRI 500 Relative Value Index and the HFRI Relative Value (Total) Index declined by 0.3% in October.

The dispersion of hedge fund performance narrowed in October, as the top decile of HFRI constituents advanced by an average of 12.2%, while the bottom decile fell by an average of 6.1%, representing a top/bottom dispersion of 18.4%. By comparison, the top/bottom dispersion in September was 25.1%.

Through the first ten months of the year, the top decile of the HFRI has surged an average of 41.5%, while the bottom decile has declined by an average of 32.8%, representing a top/bottom dispersion of 74.3%. Approximately two-thirds of all hedge funds posted positive performance in October, HFR says.

“Hedge funds advanced to begin Q4, as funds opportunistically navigated both political uncertainties, as well as inflation and interest rate driven volatility, with gains distributed across the universe of both directional and uncorrelated strategies, with leadership from Fundamental Value, Shareholder Activist, Distressed and Special Situations exposures,” says Kenneth Heinz, president of HFR. “October marks an important reversal for directional strategies, while representing an impressive and significant continuation of strong performance in both fundamental and quantitative, trend following Macro sub-strategies, which continue to lead industry performance through a year of historic breakdowns in asset correlations.

“Macroeconomic and, more recently, geopolitical uncertainty continues to drive volatility across all asset classes, with the volatility also driving political transition in Europe and likely to impact US elections in the near term,” he adds. “Forward looking institutions are likely to expand allocations to alternatives and specifically hedge funds which have demonstrated their robustness and integral portfolio protection qualities, driving industry growth into 2023.”