Macro to the Fore Again as Hedge Funds Gain in August

After a month off, macro funds once again performed strongly in August, helping propel the HFRI Index to positive territory in spite of broad declines in equities markets. HFR says commodity, currency and multi-strategy funds led the way, with the HFRI 500 Fund Weighted Composite Index rising 0.5% for the month – year-to-date it is down 2.5%.

Macro funds extended strong year-to-date performance, with the investable HFRI 500 Macro Index rising 2.6% for the month, extending the year-to-date performance to +14.8%. The HFRI Macro Index also jumped 1.6% in August, with sub-strategy performance led by the HFRI 500 Macro: Commodity Index, which rose 6.5%, and the HFRI 500 Macro: Multi-Strategy Index, which gained 3.1%, while the HFRI 500 Macro: Currency Index added 2.8%. Through the first eight months of 2022, Macro sub-strategy gains have been led by the HFRI 500 Macro: Commodity Index, which has surged 45.2%, and the HFRI 500 Macro Systematic Diversified Index, which has jumped 17.7%.

The dispersion of hedge fund performance narrowed in August, as the top decile of the HFRI constituents were up an average of 6.5%, while the bottom decile fell by an average of 12.3%, representing a top-bottom dispersion of 18.8%. By comparison, the top/bottom dispersion was 22.8% in July and 22.5% in June. Through the first eight months of the year, the top decile of the HFRI is up an average of 36.7%, while the bottom decile has declined by an average of 29.7%. Approximately 45 percent of hedge funds posted positive performance in August, HFR says.

“Hedge funds again successfully navigated equity market declines, rising interest rates, generational inflation, and increased expectations for aggressive monetary policy to post a strong, inversely correlated gain in August, extending the strong July surge,” says Kenneth Heinz, president of HFR. “Realised volatility was driven by a sharp intra-month sentiment reversal, with the first half of the month driven by an extension of the risk-on sentiment from July, while the second half was driven by powerful risk-off trends as a result of increased expectations for aggressive monetary tightening by the US Federal Reserve to reduce generational inflation.

“Continuing the powerful trends which have dominated 2022, macroeconomic and geopolitical risks remain elevated, with managers effectively navigating rapidly evolving, dynamic, and volatile market cycles across equity, fixed income, currency, and commodity exposures,” he adds. “Managers which have demonstrated their ability and strategy robustness in navigating these dynamic, fluid and volatile conditions are likely to attract capital from leading global financial institutions which are looking to reduce interest rate exposure and preserve capital, as well as generate opportunistic exposure to these powerful market trends and conditions.”