Hedge funds navigated a historic surge in volatility at the start of August as large-cap equities saw steep declines in the first three days of the month, according to hedge fund analyst firm HFR’s data.
However, most indices rebounded to conclude August with modest gains. The HFRI Fund Weighted Composite Index advanced +0.25% for the month, driven by strong performance in equity hedge and fixed income-based relative value arbitrage strategies, according to the data.
The newly launched HFRI Multi-Manager/Pod Shop Index led the way, rising +1.6% in August. This gain was attributed to a combination of equity and fixed income trading amid early-month volatility. The index includes funds employing a multi-manager/pod structure, where capital is allocated to independent investment teams (pods) that operate under portfolio management guidelines. HFR estimated that approximately $425 billion is managed within multi-manager funds.
Equity hedge funds performed particularly well in August, driven by healthcare and technology sub-strategies. The HFRI Equity Hedge (total) Index rose an estimated +0.8%, bringing its year-to-date (YTD) return to +9.0%. Leading sub-strategies included the HFRI EH: Healthcare Index, up +2.85%, and the HFRI EH: Technology Index, which gained +2.2%. The Healthcare Index was the top performer YTD with a return of +16.45%.
Fixed income-based relative value strategies also posted gains in August, with the HFRI Relative Value (total) Index rising +0.4%. Notable sub-strategy performers included the HFRI RV: Convertible Arbitrage Index, up +1.1%, and the HFRI RV: Corporate Index, which added +0.7%.
Emerging hedge funds offer competitive fees, lean operations: survey
In contrast, macro strategies experienced declines for the fourth consecutive month, as the HFRI Macro (total) Index fell -1.1% in August, led by losses in quantitative, trend-following commodity trading adviser strategies. However, the HFRI Macro: Active Trading Index surged +4.7%, offsetting some of these losses.
Event-driven strategies delivered mixed results, with the HFRI Event-Driven (total) Index posting a modest gain of +0.15%. The HFRI ED: Activist Index led sub-strategies with a +1.2% increase, while Special Situations rose +0.6%.
Kenneth J. Heinz, president of HFR, remarked, “Leading strategy areas were opportunistically positioned for the volatility, driven by a combination of technology stock weakness and unwind of the Japanese Yen carry trade, with these factors also driving mixed performance across a wide range of hedge fund sub-strategies.
Multi-manager pod shop hedge funds were among the leading areas of hedge fund performance, with these able to tactically adjust portfolio exposures through the volatility and weakness to drive gains for the month. With expectations of volatility and the potential for destabilizing dislocations remaining high through year-end, institutions which are interested in specialized, opportunistic access to these powerful trends are likely to allocate to managers which have demonstrated their strategy’s superior performance and robustness in recent months.”
Liquid alternative Ucits strategies and the HFRI Diversity Index also posted gains, with the latter rising +0.7% in August.
