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Hedge Funds

Most HFR hedge fund indexes had negative returns in Q2

The HFRI Fund Weighted Composite index returned -4.9% in the second quarter, below the -1% return of the index in the first quarter, according to new data from HFR.

The second-quarter return also fell well below the 4% return the index recorded in the second quarter of 2021.

The return of the HFRI Fund Weighted Composite index year-to-date June 30 was -5.9%, well below the 10% return in the index’s performance in the six months ended June 30, 2021.

HFR researchers in a report accompanying the performance release cited the worst first half of a calendar year by equities in 50 years, and volatility across global equity, bonds and commodity markets as well as positioning by investors for the U.S. economy to enter a recession as reasons for the poor six months.

Among HFR’s hedge fund strategy indexes, the HFRI Macro (Total) index was the lone index with a positive return for the three months ended June 30, at 2.1%. The report cited “strong contributions from quantitative, trend-following CTA (commodity trading adviser) and active trading strategies.” The index returned 6.7% for the quarter ended March 31.

HFR’s other hedge fund strategy indexes each produced negative returns in the second quarter, all below their first-quarter returns.

The HFRI Relative Value (Total) index had the least negative return among the other indexes, with a return of -2.9% for the three months ended June 30 vs. 0.7% the previous quarter, as fixed income-based, interest rate-sensitive strategies declined during the period.

The HFRI Event-Driven (Total) index returned -6.75% in the quarter ended June 30 vs. -1.35% in the previous quarter, while the HFRI Equity Hedge (Total) index returned -8.3% in the second quarter vs. -4.3% the prior quarter.

“Powerful risk off trends accelerated in June driving extreme financial market volatility with hedge funds trading through a wide range of risks including not only generational inflation, increasing interest rates, the continuation of the Russia/Ukraine war and record energy price increases, but also the increased likelihood of a consumer-led U.S. economic recession,” HFR president Kenneth J. Heinz said in the report.

Mr. Heinz added that with expectations for volatility to continue in the second half of the year, “institutional investors are likely to increase commitments to strategies which have demonstrated their ability to preserve capital through recent declines, while opportunistically positioning for dynamic positive or negative market environments.”

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