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Macro Hedge Funds Ride Financial Turmoil, Post Gains

Editorial Staff 9 May 2023

Macro Hedge Funds Ride Financial Turmoil, Post Gains

Macro funds, which are actively managed and try to profit from broad market swings caused by political or economic events, benefited from the sharp moves caused by troubles in the US banking system last month. Overall, hedge funds gained ground.

Hedge funds gained in April as banking turmoil and volatility accelerated throughout the month and extended into May with the closure and distressed acquisition of First Republic Bank, industry figures show.

The HFRI 500 Fund Weighted Composite Index advanced 0.4 per cent (estimated) in April, as managers effectively navigated the recent surge in banking volatility with performance gains led by Macro strategies, according to Hedge Fund Research.

The HFRI Fund Weighted Composite Index® (FWC) also gained an estimated 0.4 per cent for the month, led by macro and equity strategies, the firm said.

Performance dispersion narrowed in April, as the top decile of the HFRI FWC constituents advanced by an average of 5.5 per cent, while the bottom decile fell by an average of -4.4 per cent.

Nearly half of hedge funds posted positive performance in April.

The “uncorrelated macro” segment was the top-performing strategy for the month, led by fundamental, discretionary macro strategies and complemented by quantitative, trend-following CTA (Commodity Trading Advisor) strategies. 

Equity hedge funds, which invest long and short across specialised sub-strategies, also gained in April, driven by healthcare and energy sub-strategies, as volatility surged across the financial sector. The HFRI Equity Hedge (Total) Index advanced an estimated 0.4 per cent, while the investable HFRI 400 (US) Equity Hedge Index added 0.1 per cent in April. 

Event-driven strategies, which often focus on out-of-favour, deep value equity exposures and speculation on M&A situations, also advanced in April as risk in financials accelerated, as seen by pressures on US banks. The investable HFRI 400 Event-Driven Index gained 0.2 per cent (estimated), while the HFRI Event-Driven (Total) Index also added an estimated 0.2 per cent. 

Liquid Alternative UCITS strategies also gained in April, with the HFRX Global Index returning 0.34 per cent, while the HFRX Market Directional Index added 0.71 per cent. 

“Hedge fund managers have continued to navigate the surge in bank and financial risk volatility, with historic dislocations, chaotic, frenzied trading and structural uncertainty conditions unlike anything since 2008, or possibly even prior to that,” Kenneth Heinz, president of HFR, said. “Given this surge in volatility, comparable in magnitude to 2008, the worst year in the history of HFRI performance, managers posted gains in May across a range of equity, credit and trading oriented strategies as weakness and risk concentrated in regional banks dominated financial market conditions, culminating with the closure and sale of First Republic Bank.”

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