09/09/2019 Market Commentary

Trend-followers post best gain since December 2010 on negative interest rates; Fundamental HFRI Macro Discretionary surges to record gain 
CHICAGO, (September 9, 2019) – Macro hedge funds surged in August while the broader industry posted mixed performance as equity markets declined while the global supply of negative-yielding bonds swelled to over $16 trillion, with gains led by both fundamental and quantitative Macro strategies. The HFRI Fund Weighted Composite Index® posted a narrow gain of  +0.05 percent for the month, as gains in Macro strategies were offset by declines across Equity Hedge, Event-Driven, and RVA strategies, as reported today by HFR®, the established global leader in the indexation, analysis and research of the global hedge fund industry.   The August gain extend the HFRI record Index Value to 14,439, the 3rd consecutive record level. The HFRI 500 Fund Weighted Composite Index, an investible index of 500 leading hedge funds, declined -0.45 percent in August.
Risk Premia produced strong gains across trend-following/momentum strategies in August, led by the HFR BSRP Multi-Asset Momentum Index, which gained +8.0 percent for the month, bringing YTD performance to +44.8 percent. Sub-strategy gains in Risk Premia were driven primarily by trends in rates and precious metals, with the HFR BSRP Commodities Momentum Index surging +20.5 percent and the HFR BSRP Rates Momentum Index adding +7.6 percent. Risk Parity strategies also advanced for the month, with the HFR Risk Parity (Volatility 15) Index gaining +1.5 percent, bringing the YTD gain to +26.4 percent.
Macro strategies led HFRI performance in August, as interest rates fell sharply and the supply of negative yielding government bonds expanded, with the HFRI Macro (Total) Index advancing +4.0 percent, the strongest gain since February 2008. The August gain increases the YTD performance for the Index to +10.5 percent, leading all hedge fund strategies on the year. Macro sub-strategy performance in August was led by discretionary, fundamental strategies with the HFRI Macro: Discretionary Thematic Index surging +8.4 percent, the highest gain since Index inception. Quantitative, trend-following CTA strategies posted the strongest gain since December 2010, with the HFRI Macro: Systematic Diversified Index surging +4.5 percent, with gains across fixed income and commodities.
Equity Hedge strategies declined in August, though performance was mixed across EH sub-strategies, as the HFRI Equity Hedge (Total) Index fell -1.6 percent. EH sub-strategy losses were led by the HFRI EH: Fundamental Value Index, which fell -2.4 percent for the month. These declines were partially offset by gains in Market Neutral and Energy-focused strategies, with the HFRI EH: Equity Market Neutral Index advancing +1.1 percent, and the HFRI EH: Energy Basic Materials Index adding +1.0 percent for the month.
Fixed income-based Relative Value Arbitrage and M&A-sensitive Event-Driven strategies also declined in August, with the HFRI Relative Value (Total) Index declining -0.55 percent, while the HFRI Event-Driven (Total) Index dropped -1.3 percent. RVA sub-strategy declines were driven by the HFRI RV: Multi-Strategy Index, which fell -1.1 percent and was only partially offset by a gain of +0.5 percent in the HFRI: RVA Convertible Arbitrage Index. Similarly, ED sub-strategy declines were led by the HFRI ED: Multi-Strategy Index, which fell -2.5 percent, which was only partially offset by a gain of +1.1 percent in the HFRI ED: Credit Arbitrage Index.
“Both Discretionary and Quantitative, Trend-Following Macro strategies surged in August, as equity markets declined, the US yield curve inverted and a record level of government bonds traded at negative yields. Opportunistic Macro strategies have effectively navigated the fluid, W-shaped financial market performance, including the unprecedented supply of negative yielding bonds, into a position of leading areas of hedge fund performance for 2019,” stated Ken Heinz, President of HFR. “Macro strategies have experienced an important evolution from a space which was once driven by brash, risky Macro trading or simple trend-following models to include the most powerful, sophisticated, robust algorithmic trading models, making effective application and use of AI, Machine Learning and market making/liquidity provision techniques. Now leading industry performance for 2019, Macro strategies are likely to continue to attract, or re-attract, institutional investors positioning for continuation and extension of the current, volatile macroeconomic trading environment into 2020.”
Performance figures referenced are as published on September 9, 2019.