Macro Strategies Show Worth in Tough 2022 Start for Hedge Funds

Macro hedge funds posted strong, negatively-correlated gains in January as equity and fixed income markets suffered steep losses, while investors positioned for sharp interest rate increases and generational inflationary pressures to begin 2022.

According to hedge fund analytics and indexing firm HFR, the investable HFRI 500 Macro Index was up 1.35% for the month, while the broader HFRI Fund Weighted Composite Index (FWC) declined 1.7% for the month, topping the sharp decline of the Nasdaq by over 700 basis points. The investable HFRI 500 Fund Weighted Composite Index also declined 1.7% for the month, following a gain of 9.93% for 2021. Macro performance was driven by strong gains across commodity, discretionary, and quantitative strategies, the HFRI Macro: Commodity Index, was up 5.5% on record US inflation, while the HFRI Macro: Discretionary Thematic Index advanced 0.6% and the HFRI Macro: Systematic Diversified Index added 0.2%.

The performance dispersion of the underlying HFRI index constituents expanded in January, with the top decile of the HFRI gaining an average of 7.2%, while the bottom decile declined by an average of 12.6%, representing a top-bottom dispersion of 19.8%. In comparison, the top-bottom dispersion in December 2021 was 18.0%. Approximately 40 percent of funds in the HFRI FWC generated positive performance in January.

Fixed income-based, interest rate-sensitive strategies generated a narrow gain for the month as bond yields surged, with gains in yield alternative funds offsetting narrow declines across other sub-strategies. The HFRI Relative Value (Total) Index posted a narrow gain of 0.1% in January, while the investable HFRI 500 Relative Value Index posted a narrow decline of 0.2%. Sub-strategy performance was led by the HFRI RV: Yield Alternatives Index, which gained 1.3%, and the HFRI RV: Fixed Income Corporate Index, which added 0.6%.

Equity hedge funds, which invest long and short across specialised sub-strategies, posted a decline to begin 2022 after leading strategy performance in 2021. Likewise, event-driven strategies, which often focus on out-of-favour, deep value equity exposures and speculation on M&A situations, also declined

Risk Premia strategies declined as risk-off sentiment drove losses, with the HFR BSRP Multi-Asset Index falling 7.55% for the month, while the HFRI BSRP Currency Index posted a fractional decline of 0.03%. The HFRI-I UCITS Liquid Alternative Index declined 0.97%.

“Macro hedge funds surged to impressive, negatively-correlated gains in January as financial market volatility spiked, and as equity and fixed income markets posted steep losses, demonstrating both capital preservation and portfolio volatility protection as US inflation reached levels not seen since the early 1980’s,” says Kenneth Heinz, president of HFR. “Looking into 2022, hedge funds have adjusted positioning to trends and drivers of performance which are not a continuation of the last two years, with primary focus on inflation and interest rate sensitivity, commodities, M&A and selective, hedged equity exposures. Funds tactically positioned for these dynamic macroeconomic and geopolitical risks and opportunities are likely to lead industry performance through a volatile first half of 2022.”