Hedge funds saw gains in April despite equities declining, driven by Macro strategies and the industry’s largest funds, according to data from hedge fund analyst HFR.
The HFRI Macro Asset Weighted Index surged by 2.6 %, with these funds extending their first-quarter gains. This advancement comes as financial markets reacted to economic data revealing persistent inflationary pressures. Managers and investors adjusted their positions, anticipating sustained high interest rates, reversing earlier optimism for multiple rate cuts in 2024.
Fixed income-based Relative Value Arbitrage strategies also gained ground, fueled by expectations of continued inflation and higher interest rates. Larger funds outperformed their mid-to-smaller counterparts, with the HFRI Asset Weighted Composite Index gaining 0.9%, contrasting with the HFRI Fund Weighted Composite Index’s 0.6% decline.
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Macro strategies showcased gains inversely correlated with equity market declines, marking strong performance for the year. The HFRI Macro Asset Weighted Index climbed 2.6% for the month, with notable contributions from sub-strategies like Commodity and Discretionary Thematic. Performance dispersion widened in April, with the top decile of constituents advancing by 5.9% on average, while the bottom decile fell by 8.4%.
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Interest rate-sensitive strategies flourished as investors positioned for persistent inflation and elevated interest rates. The HFRI Relative Value (Total) Index gained an estimated 0.3%, with contributions from the Yield Alternatives and Multi-Strategy sub-indices.
However, Equity Hedge funds experienced declines, driven by losses in Healthcare, Technology, and Quantitative Directional exposures. The HFRI Equity Hedge (Total) Index fell by 1.6%, lowering the year-to-date return.
Event-driven strategies, focusing on out-of-favour equity exposure and M&A speculation, also declined due to losses in Activist and Special Situations exposures. The HFRI Event-Driven (Total) Index fell by 1.9%.
Liquid Alternative UCITS strategies had a mixed performance, with the HFRX Macro Index posting a narrow gain, while the HFRX Global and Absolute Return Indexes declined. Lastly, the HFRI Diversity and Women Indexes recorded marginal declines in April.
Kenneth J. Heinz, president of HFR, commented: “With macroeconomic and geopolitical uncertainty accelerating through mid-year, Macro represents an ideal portfolio allocation for institutions navigating these volatile and dynamic financial market conditions.”
