Investors were concerned about heightened uncertainties caused by a renewed focus on the spread of virus variants.

Hedge funds recorded a narrow loss in July, the first decline this sector has logged since September last year, industry figures showed.

The HFRI Fund Weighted Composite Index® (FWC) fell by 0.6 per cent in July, while the investible HFRI 500 Fund Weighted Composite Index declined -0.5 per cent, according to data released today by Hedge Fund Research, the Chicago-based firm tracking the sector said.

The HFRI FWC Index has gained 9.5 per cent through the first seven months of 2021, including the strongest performance in the first half of a calendar year since 1999  - a fact that has reignited interest in a sector that had suffered weak performance and outflows a decade ago amidst the global financial crisis. 

In the trailing nine-month period ending July 2021, the HFRI FWC has risen by more than 21 per cent. As reported previously by HFR, driven by investor inflows and strong performance, total hedge funds industry capital surged to $3.96 trillion through mid-year 2021.

The performance dispersion of the underlying index constituents narrowed in July, as the top decile of the HFRI gained an average of 4.8 per cent, while the bottom decile declined an average of 7.1 per cent for the month. That translates into a top-bottom spread of 11.9 per cent in July from 13.0 per cent in June.

“Hedge funds navigated a volatile market environment in July with mixed performance across sub-strategies and narrow declines across broad-based indices as, despite strong corporate earnings, investors focused on increased uncertainty surrounding renewed focus on the spread of virus variants,” Kenneth J Heinz, president of HFR, said. 

“The evolving macroeconomic environment continues to be fluid with reflationary, expansionary trends subject to sharp reversals and falling rates and inflation expectations. Hedge funds remain tactically positioned for these shifts, with high realized equity market volatility, oscillating between record highs and sharp correction cycles within intra-month, or even shorter, market cycles.”