Hedge fund performance in July gained 0.8% overall, with two-thirds of funds achieving positive gains that were attributed to mounting recession fears and a spike in volatility.
Gains in event-driven and equity-hedge strategies led performance, according to data from HFR.
There was an extended dispersion in performance, ranging from an average of 8% gains in the top decile of the HFRI Fund Weighted Composite Index, to 5.4% declines in the bottom decile.
In the trailing 12 months ending July 2024, the top decile of index constituents gained 33.1%, while the bottom decile declined 12.7%.
Event-driven strategies, which often focus on out-of-favor equities and speculate on M&A, led strategy performance in July, with gains driven by investors beginning to position for falling interest rates in the US and Europe, a factor for M&A activity. The HFRI Event-Driven (Total) Index advanced 2.5%.
Interest rate-sensitive strategies also gained for fixed income hedge funds in July, as managers positioned for falling rates, moderating inflation, and accelerating geopolitical uncertainty. The HFRI Relative Value (Total) Index advanced an estimated 0.8 percent for the month.
Macro strategies posted an average decline of 1% in July as commodities and interest rates fell.
Liquid alternative Ucits strategies posted gains for the month. The HFRX Global Hedge Fund Index advanced 0.74%, led by event-driven strategies.
Kenneth J. Heinz, president of HFR, said: “Hedge funds gained in July as geopolitical uncertainty rapidly accelerated into economic uncertainty, and inflation concerns rapidly shifted to recession fears to begin the month of August, driving a historical volatility spike and dislocations across global equity, fixed income and currency markets.”
He added that institutions interested in defensive capital preservation and portfolio protection, as well as accessing specialised opportunities created by volatility, are likely to increase exposure to hedge funds in the second half of the year.