Macro Strategies Help Hedge Funds Defy Equity Market Falls

Editorial Staff

12 September 2022

Hedge funds gained in August as macro and event-driven strategies were able to make money, while US stock markets slid amid heightened expectations of tighter US monetary policy to curb inflation, figures from show.

The investable HFRI 500 Fund Weighted Composite Index advanced 0.5 per cent for August, narrowing the 2022 decline to -2.5 per cent. The HFRI Fund Weighted Composite Index® also added 0.5 per cent in August, led by quantitative, trend-following macro CTA strategies and currency exposures.

The dispersion of hedge fund performance narrowed in August, as the top decile of the HFRI constituents advanced by an average of 6.5 per cent, while the bottom decile fell by an average of -12.3 per cent, representing a top-bottom dispersion of 18.8 per cent. By comparison, the top/bottom dispersion was 22.8 per cent in July and 22.5 per cent in June.

Macro strategies extended strong year-to-date performance despite broad equity market declines, increasing interest rates and surging volatility, led by commodity, quantitative, trend-following CTA (commodity trading advisors) strategies and currency-focused exposures, as the dollar posted strong gains. The investable HFRI 500 Macro Index surged 2.6 per cent for the month, extending the year-to-date performance to 14.8 per cent.

For much of 2022, the ability of macro strategies to defy the decline in the wider stock market reminded investors of hedge funds’ old promise to diversify risks. (To some extent, this explains their “hedge” characteristic.) Macro hedge funds typically attempt to profit from broad market swings caused by political or economic events. The war in Ukraine, for example, and the surge in inflation and rising interest rates, are exactly the kind of changes such funds try to tap into.

The HFRI Macro Index also jumped 1.6 per cent in August, with macro sub-strategy performance led by the HFRI 500 Macro: Commodity Index, which surged 6.5 per cent for August, and the HFRI 500 Macro: Multi-Strategy Index, which gained 3.1 per cent, while the HFRI 500 Macro: Currency Index added 2.8 per cent for the month.

Event-driven strategies, which often focus on out-of-favour, deep value equity exposures and speculation on M&A situations, also advanced in August as the HFRI Event-Driven (Total) Index gained 0.8 per cent, while the investable HFRI 500 Event-Driven Index advanced by 0.4 per cent for the month.

Fixed income-based, interest rate-sensitive strategies posted mixed gains in August.

The HFRI Relative Value (Total) Index advanced 0.8 per cent for the month, while the investable HFRI 500 Relative Value Index added 0.2 per cent.

Equity hedge funds, which invest long and short across specialised sub-strategies, fell in August as equity markets fell sharply, reversing strong prior month gains, with the investable HFRI 500 Equity Hedge Index falling 1.0 per cent, while the HFRI Equity Hedge (Total) Index posted a narrow decline of 0.2 per cent.