The latest report on hedge fund performance from industry data provider Hedge Fund Research, Inc showed that certain segments in the more than $3 trillion asset class turned in the best performance since 2013.
HFR’s widely-followed HFRI Macro (Total) Index gained +2.1 percent for the month, rebounding from years of mediocre returns. Macro hedge funds focusing on developed markets gained thanks to bets on fixed income, currencies, metals, and energy commodities as well as by shorting stocks during the virus-fueled market rout.
Macro gains, however, were offset by declines across other strategies, with the HFRI Fund Weighted Composite Index® (FWC) falling -5.9 percent in March, the biggest monthly loss since October 2008. HFRI 500 Hedge Fund Composite Index also marched lower, shedding -6.2 percent.
Hedge funds experienced a historical dispersion of performance, says the HFR, as the stock market plunge has given managers a rare opportunity to perform better than traditional market funds during a time of corona stress.
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More specifically, the top decile of HFRI constituents posted an average gain of +18.5 percent, while the bottom decile fell an average of -30.0 percent. Through the first quarter, the HFRI FWC has lost -8.3 percent, while the HFRI Macro (Total) Index has gained +1.2 percent. The FWC decline in 1Q represents less than one-quarter of the decline of the DJIA and less than one-third of the decline of the Russell 2000.
The report also states that equity hedge and event-driven strategies suffered losses similar to traditional stock market portfolios. HFRI Equity Hedge (Total) Index fell -9.5 percent while the HFRI Event-Driven (Total) Index lost -12.4 percent, the largest single-month decline since inception. The data provider pointed to the value of the strategies as markets plummeted on fears of the coronavirus hurting more people, supply chains, and economies.
Discretionary Commodity and currency macro strategies also gained last month, with the HFRI Macro: Commodity Index returning +3.1 percent, while the HFRI Macro: Currency Index added +2.9 percent.
In addition, February’s drop was overshadowed by March’s shakeout, which has seen stocks from the US to Asia plunge, rebound then fall anew, while bonds and currencies have also fluctuated wildly. That could help funds that thrive on volatility, while investors who have taken short positions may be hurt.
“Financial markets experienced a historic spike in volatility in March as the spreading coronavirus pandemic drove steep losses across global equities and energy commodities, as well as an indiscriminate flight to quality across fixed income and currencies. Uncorrelated, defensively and long volatility-positioned hedge fund strategies posted impressive, negatively-corelated gains for the month, while directional equity-sensitive, long-biased, and arbitrage strategies posted sharp declines,” stated Kenneth J. Heinz, President of HFR.