Posted by Colin Lambert. Last updated: August 15, 2024
Macro strategies posted losses in July, in contrast to a more positive picture generally amongst hedge funds as other strategies took advantage of more volatile conditions in global markets.
The HFRI Fund Weighted Composite (FWC) Index rose 0.8% according to compiler, indexation and analysis firm HFR, led by gains in Equity hedge and Event Driven strategies, along with good performance from crypto funds. In contrast, Macro strategies posted declines as commodities and interest rates fell, driven by losses in quantitative, trend-following CTA strategies and fundamental Commodity exposures.
The HFRI Macro (Total) Index fell 1.0% in July, the third consecutive monthly decline, with losses led by the HFRI Macro: Systematic Diversified Index and the HFRI Macro: Commodity Index, each of which fell 2.1% for the month. Partially offsetting these declines, the fundamental HFRI Macro: Discretionary Thematic Index was up 1.1% for the month.
Fixed income-based, interest rate-sensitive strategies gained in July, as managers positioned for declining interest rates and moderating inflation, as well as accelerating geopolitical uncertainty. The HFRI Relative Value (Total) Index advanced an estimated 0.8% in July; RVA sub-strategy performance was paced by the HFRI RV: Yield Alternatives Index and HFRI RV: FI-Convertible Arbitrage Index, which were +1.6 and +1.2%, respectively, while the HFRI RV: Volatility Index added 0.7%.
The HFR Cryptocurrency Index was up 5.4%, the HFR Event Driven (Total) Index was up 2.5%, while the HDR Equity Hedge (Total) Index rise 1.35%, to lead performance amongst the sub-strategies.
Performance dispersion expanded in July, as the top decile of the FWC constituents advanced by an average of +8.0%, while the bottom decile fell by an average of -5.4%. This represents a top/bottom dispersion of 13.4%, compared to 11.2% in June. In the trailing 12 months ending July 2024, the top decile of FWC constituents gained +33.1%, while the bottom decile declined -12.7%, a dispersion of 45.8%.
HFR says approximately two-thirds of hedge funds produced positive performance in July.
“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,” says Kenneth Heinz, president of HFR. “Event-Driven and Equity Hedge strategies led gains as investors positioned for both political transition, continuation of ongoing military conflict, and falling interest rates across the US and Europe in 2H24.
“The acceleration of this unprecedented election and geopolitical risk spiralled into macroeconomic risk, leading to a historical dislocation to begin the month of August, with hedge funds already having been positioned for an unstable interest rate and inflation environment, with these adding to dislocation risks associated with ongoing, active and potential military conflicts,” he continues. “Through late July and into early August, strength in the US large cap Technology sector has reversed to growth-sensitive weakness and strategic volatility, with performance across all strategies impacted by fluid and potentially destabilizing policy changes and dislocations.
“As these powerful trends evolve through H224, institutions interested in defensive capital preservation and portfolio protection, as well as accessing specialised opportunities created by this volatility, are likely to increase exposure to hedge funds which have demonstrated their strategy’s robustness of navigating these building and evolving risks over recent months and years,” he concludes.