Macro strategies reported losses in July, diverging from the generally positive performance seen across other hedge fund strategies, which capitalized on volatile global market conditions.
The HFRI Fund Weighted Composite (FWC) Index recorded a 0.8% increase, according to data from HFR, an indexation and analysis firm. This growth was driven by strong gains in Equity Hedge and Event Driven strategies, along with robust performance from cryptocurrency funds. However, Macro strategies struggled, posting declines as commodities and interest rates dropped, primarily due to losses in quantitative, trend-following Commodity Trading Advisor (CTA) strategies and fundamental commodity exposures.
The HFRI Macro (Total) Index fell by 1.0% in July, marking the third consecutive month of declines. The losses were led by the HFRI Macro: Systematic Diversified Index and the HFRI Macro: Commodity Index, both of which fell 2.1% for the month. Offsetting some of these losses, the HFRI Macro: Discretionary Thematic Index gained 1.1% during the same period.
Fixed income-based, interest rate-sensitive strategies saw gains in July as managers adjusted their positions in response to declining interest rates, moderating inflation, and escalating geopolitical uncertainty. The HFRI Relative Value (Total) Index rose by an estimated 0.8% in July, with sub-strategies like the HFRI RV: Yield Alternatives Index and HFRI RV: FI-Convertible Arbitrage Index advancing by 1.6% and 1.2%, respectively. Additionally, the HFRI RV: Volatility Index gained 0.7%.
The HFR Cryptocurrency Index surged by 5.4%, while the HFR Event Driven (Total) Index and HFR Equity Hedge (Total) Index rose by 2.5% and 1.35%, respectively, leading the performance among sub-strategies.
Performance dispersion widened in July, with the top decile of FWC constituents averaging an 8.0% gain, while the bottom decile averaged a 5.4% decline, resulting in a dispersion of 13.4%, up from 11.2% in June. Over the trailing 12 months ending July 2024, the top decile of FWC constituents saw gains of 33.1%, while the bottom decile experienced a 12.7% decline, reflecting a dispersion of 45.8%.
HFR reported that approximately two-thirds of hedge funds achieved positive performance in July.
“Hedge funds gained in July as geopolitical uncertainty rapidly escalated into economic uncertainty, with inflation concerns shifting to recession fears as August began, leading to heightened volatility and dislocations across global equity, fixed income, and currency markets,” said Kenneth Heinz, president of HFR. “Event-Driven and Equity Hedge strategies led gains as investors positioned for political transitions, continued military conflicts, and falling interest rates in the US and Europe during the second half of 2024.
“The acceleration of unprecedented election and geopolitical risks has spiraled into macroeconomic risk, causing significant market dislocations as August began,” Heinz continued. “Hedge funds, already positioned for an unstable interest rate and inflation environment, are now navigating these evolving risks, including potential military conflicts.
“As these powerful trends continue throughout the second half of 2024, institutions focused on defensive capital preservation and portfolio protection, as well as those seeking specialized opportunities created by this volatility, are likely to increase their exposure to hedge funds that have demonstrated their ability to navigate these complex and evolving risks,” Heinz concluded.
Related topics:
