Hedge funds extended first-half gains in July, led by event driven and equity hedge strategies, amid improving M&A activity, stronger earnings and a stable economic outlook, according to hedge fund research firm HFR’s data.
The HFRI Fund Weighted Composite Index rose to roughly 0.8% in July, supported by gains in event driven strategies. The category gained 1.5% for the month, with activist funds up 4.0% and multi-strategy approaches returning 1.8%, as managers benefited from easing volatility and renewed corporate activity.
Equity hedge funds also performed well, advancing 1.2%. The strongest returns came from healthcare-focused strategies, which surged 4.8%. Fundamental growth, market neutral and technology sub-strategies posted smaller but positive gains. With a year-to-date return of 7.25%, equity hedge remains the best-performing major strategy group so far in 2025.
Performance dispersion narrowed slightly in July. The top decile of funds gained 6.7% on average, while the bottom decile lost 4.6%, marking an 11.3% gap. Over the past year, the spread between top and bottom performers widened to nearly 60 percentage points. Around 70% of hedge funds ended the month in positive territory.
Fixed income-based relative value strategies posted a 0.8% gain, led by convertible arbitrage and corporate sub-strategies, which returned 1.85% and 1.2%, respectively.
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The HFRI Macro Index slipped 0.1%, with systematic diversified funds up 0.3% and multi-strategy funds down 1.2%. Cryptocurrency funds rebounded, with the HFR Cryptocurrency Index rising 14.5% in July.
Ucits-compliant hedge funds also moved higher. The HFRX Market Directional Index rose 1.3%, while the HFRX Global Hedge Fund Index gained 0.6%, led by equity-focused strategies.
“Hedge funds posted a strong start to the second half of the year, accelerating the powerful performance trend of the second quarter and building on strong institutional demand and asset growth in the first half. July gains were extended across nearly all strategies – crypto, event driven, equities, activist, fixed income, and multi-strategy/pod shops – with these benefitting from increased near-term clarity on trade/tariff negotiations, expectations for interest rate reductions, and an improved global economic outlook for the second half of the year.” stated Kenneth J. Heinz, president of HFR.
Heinz added: “With equity markets at record highs, while risk-on sentiment has dominated the past 2.5 months supporting gains across both hedge funds and long biased benchmarks, significant risks remain with the potential for reversals and volatility as geopolitical policy changes are factored into global financial markets. Forward looking institutional investors are likely to accelerate the capital growth trend from the first half of the year by allocating to strategies opportunistically positioned to participate in additional market gains whilst at the same time retaining the tactical flexibility to quickly react to dynamic and unpredictable changes which are likely to occur in the current financial market paradigm.”