MACRO HEDGE FUNDS LEAD HFRI JULY GAINS
MACRO HEDGE FUNDS LEAD HFRI JULY GAINS
Broad-based HFRI composite extends record level; Volatility spikes again as trade wars escalate, U.S. lowers rates
CHICAGO, (August 7, 2019) – Hedge funds posted gains in July, as Macro strategies led industry performance driven by the month-end spike in financial volatility on escalation in trade wars and lower U.S. interest rates. The HFRI Fund Weighted Composite Index® gained +0.7 percent for the month, increasing the Index Value to 14,465, advancing the record index level from the prior month, as reported today by HFR®, the established global leader in the indexation, analysis and research of the global hedge fund industry. The HFRI 500 Fund Weighted Composite Index, an investible index of 500 leading hedge funds, advanced +0.8 percent in July, increasing YTD performance to +7.6 percent.
Risk Premia strategies also posted gains, led by Currency exposures, as the HFR BSRP Index surged +5.66 percent for the month. Liquid Alternatives also advanced in July, as the HFRI-I Liquid Alternative UCITS Index added +0.63 percent for the month, led by the HFRI-I Liquid Alternative UCITS Macro Index, which gained +1.26 percent.
Among the major hedge fund strategies, Macro hedge funds led gains as volatility increased across equity, currency, fixed income and commodity markets into month-end, driven by an escalation of trade wars, the U.S. Federal Reserve lowering interest rates, and ongoing Brexit considerations. The HFRI Macro (Total) Index advanced +1.7 percent in July, topping the gain of the S&P 500 Index, led by quantitative, trend-following CTA and Commodity strategies. The HFRI Macro: Systematic Diversified Index gained +2.8 percent for the month, while the HFRI Macro: Commodity Index added +1.2 percent. Bank Risk Premia currency strategies posted strong July gains on increased volatility, with HFR BSRP Currency Index surging +5.66 percent and the HFR BSRP Currency Carry Index vaulting +11.0 percent for the month, benefitting from the U.S. reduction in interest rates.
Equity Hedge strategies also advanced in July despite a steep equity market selloff in the final trading day of the month, as the HFRI Equity Hedge (Total) Index added +0.4 percent, extending the YTD return to +9.8 percent. Equity Hedge sub-strategy performance was led by the HFRI EH: Technology Index, which gained +3.0 percent, increasing YTD performance to +13.2 percent. The HFRI EH: Fundamental Value Index advanced +0.5 percent in July, bringing the YTD gain to +11.6 percent; the HFRI 500 Equity Hedge Index returned +0.6 percent for the month.
Fixed income-based Relative Value Arbitrage (RVA) and M&A-sensitive Event-Driven (ED) strategies also advanced for the month, as HFRI Relative Value (Total) Index gained +0.4 percent, while the HFRI Event-Driven (Total) Index added +0.3 percent in July. RVA sub-strategy performance was led by corporate bond exposures, with the HFRI RV: Fixed Income Corporate Index gaining +1.2 percent. ED sub-strategy performance was led by the HFRI ED: Credit Arbitrage Index, which returned +1.1 percent, and the HFRI ED: Special Situations Index, which added +0.6 percent. ED performance was partially offset by a decline of -0.5 percent in the HFRI ED: Multi-Strategy Index. The HFRI 500 Event-Driven Index advanced +0.3 percent for the month, increasing YTD performance to +6.4 percent. Risk Parity strategies extended strong YTD gains in July, as the HFR Risk Parity Vol 15 Index advanced +1.3 percent for the month, bringing YTD performance to +25.4 percent.
“Hedge funds posted gains in July despite rising trade war tensions and an interest rate reduction by the U.S. Federal Reserve, as quantitative, trend-following CTA, currency and commodity risk premia strategies led industry performance,” stated Kenneth J. Heinz, President of HFR. “While the re-emergence of the trade war-associated volatility has been a recurrent theme driving the sawtooth, W-shaped market performance over the past year, the interest rate reduction, prospects for additional reductions, currency devaluation and charges of currency manipulation comprise an evolution of the trend we have seen driving hedge fund and broader financial market performance, effectively creating a new market paradigm. In this environment of falling and persistently negative interest rates globally, specialized Macro funds, including CTA, Currency, Commodity and Risk Premia strategies, are well-positioned for this shiftng macroeconomic environment and are likely to lead industry performance in 2H19.”
Comments reference Flash Update performance figures as posted on August 7, 2019.