Hedge funds posted gains in July to begin the second half of 2018, recovering the narrow decline from June, and effectively navigating a primarily positive earnings season punctuated with certain idiosyncratic equity volatility and directional dislocations, including Facebook and Apple.
The HFRI Fund Weighted Composite Index advanced 0.6 per cent for the month, according to data released today by HFR.
Bank Systematic Risk Premia strategies again posted mixed performance in July with gains concentrated in Credit and Equity strategies. The HFR BSPR Credit Index gained 3.14 per cent for the month, led by the HFR BSRP Credit Multi-Strategy Index, which jumped 10.09 per cent. Similarly, the HFR BSRP Equity Index added 0.53 per cent for the month, led by a 4.72 per cent return in the HFR BSPR Equity Low Beta Index.
The volatile HFR Blockchain Index also surged in July, driven by strong gains in underlying cryptocurrencies. The HFR Blockchain Index gained 13.2 per cent for the month, the strongest gain since April, bringing the YTD decline to -42.6 per cent.
HFRI performance was led by Equity Hedge strategies, as overall equity markets gained for the month despite earnings-specific volatility across many widely held equity positions including Facebook, Apple, Tesla, General Electric, General Motors, and Ford. The HFRI Equity Hedge (Total) Index advanced 1.1 per cent in July, increasing YTD return to 2.3 per cent. EH sub-strategy performance was led by the HFRI EH: Quantitative Directional Index, which gained 2.0 per cent for the month. The HFRI EH: Healthcare Index advanced +1.8 per cent, bringing the YTD return to +11.2 per cent, which leads all hedge fund sub- strategies, as well as the Nasdaq Composite Index.
Fixed income-based Relative Value Arbitrage funds also advanced in July, with the HFRI Relative Value (Total) Index gaining 1.0 per cent and bringing the YTD return to +2.6 per cent, the leading area of main strategy performance. RVA July sub-strategy performance was led by the HFRI RV: Yield Alternatives and HFRI RV: Volatility Indices, which gained 1.9 and 1.6 per cent, respectively, for the month. The HFR Risk Parity Indices posted narrow gains in July, as the Vol 10 Index added 0.05 per cent, and the Vol 12 and Vol 15 indices advanced 0.24 and 0.05 per cent, respectively.
Event-Driven hedge funds also extended YTD gains, with the HFRI Event-Driven (Total) Index advancing 0.5 per cent in July, bringing the YTD return to +2.5 per cent, very near the gains from the HFRI RVA and EH indices. ED July sub-strategy performance was led by the HFRI ED: Distressed Index, which added 1.6 per cent for the month and leads ED sub-strategies YTD 2018 with a +4.6 per cent return.
Macro hedge funds experienced mixed performance in July, with the HFRI Macro (Total) Index declining 0.5 per cent. Strength in the HFRI Macro: Currency and HFRI Macro: Active Trading Indices, which gained 1.2 and 0.6, respectively, was offset by weakness in CTA strategies, as the HFRI Macro: Systematic Diversified Index declined 1.0 per cent.
“Corporate earnings, trade-tariff negotiations and continued US-centric economic growth drove hedge fund performance in July, with managers navigating post-earnings directional volatility, both long and short, across a number of widely held equity positions, inclusive of specialised exposure to Technology,” says Kenneth J Heinz (pictured), President of HFR. “Powerful trends also propelled gains across credit and blockchain exposures, with the former including risk premia strategies while the latter pared steep 2018 losses. With continued acceleration of the US economy and expectations for higher US interest rates in 2H18, it is likely that funds tactically positioned for these trends will continue to lead industry performance into 2019.”