Macro Strategies Push Hedge Funds Higher in February
Posted by Colin Lambert. Last updated: March 9, 2022
For the second month in a row, Macro hedge funds outperformed amidst geopolitical tensions, as hedge funds offered negatively-correlated gains.
According to data from hedge fund indexing, analytics and research firm HFR, its HFRI 500 Macro Index rose 2.9% in February, extending the 2022 gain to 4.75%, with strong contributions from commodity, fundamental discretionary and quantitative, trend-following strategies. The broader investable HFRI 500 Fund Weighted Composite Index advanced 1.2% for the month, topping the decline of the Nasdaq by 470 basis points. The HFRI Fund Weighted Composite Index also gained 0.6% in February.
The performance dispersion of the underlying HFRI index constituents narrowed in February, with the top decile of the HFRI gaining an average of 9.0%, while the bottom decile declined by an average of 5.8%, representing a top-bottom dispersion of 14.8%. Highlighting the breadth of performance in 2022, through the first two months of the year the top decile of the HFRI has surged an average of 14.1%, while the bottom decile has declined by an average of 14.4%.
In addition to the HFRI 500 Macro Index, the Macro (Total) Index gained 2.1%, with gains led by sub-strategies in commodities – the sub-index for which rose 6.3% – and the Discretionary Thematic Index which rose 3.3%. Quantitative, trend-following macro sub-strategies also gained in February, with the HFRI 500 Macro: Systematic Diversified Index adding 2.85%. Emerging Markets hedge fund performance partially offset industry-wide gains, with the HFRI Emerging Markets Index falling by 1.6%, unsurprisingly the volatile HFRI EM: Russia/Eastern Europe Index declined 31.2%.
Fixed income-based, interest rate-sensitive strategies posted mixed performance for the month, with gains in yield alternative funds offsetting narrow declines across other sub-strategies. Both the investable HFRI 500 Relative Value Index and the HFRI Relative Value (Total) Index advanced 0.4% in February. Sub-strategy performance was led by the HFRI RV: Yield Alternative Index, which gained 1.5%, while the HFRI RV: Volatility Index returned 1.2%. These gains were partially offset by declines in the HFRI RV: FI-Sovereign Index, which fell 1.1%.
“Led by uncorrelated macro strategies, hedge funds posted broad-based gains in February as geopolitical tensions spiked to a historic high on the Russian invasion of Ukraine,” says Kenneth Heinz, president of HFR. “Macro funds gained in both January and February, though the drivers of the gains shifted between the months; February was driven by the spike in commodity prices and declining equities in response the invasion of Ukraine, while January performance was driven by rising commodity prices, falling equities, and rising interest rates as a result of generational inflationary pressures.
“The combination of these two powerful market dynamics has contributed to massive dislocations and unprecedented macro and geopolitical uncertainty across commodity, equity, and fixed income markets, with managers navigating tremendous and fluid volatility,” he adds. “Many managers, especially macro managers, have clearly demonstrated their tactical flexibility to respond to these rapidly shifting market cycles and conditions, and these strategies are likely to continue to lead industry performance through this unprecedented geopolitical and macroeconomic uncertainty.”