By Hugh Leask
Hedge funds are firing on all cylinders in 2024, with managers delivering positive returns across all strategies during Q1, as macro, trend-following CTAs, energy, and healthcare-focused funds led the surge in March.
New data published by Hedge Fund Research shows the industry has now generated a near 5% return for investors since the start of January.
HFR’s main Fund Weighted Composite Index – a key benchmark which measures the performances of more than 1400 hedge funds across all strategy types – added 2.5% in March, bringing its first-quarter returns to 4.95%, as roughly 85% of all managers delivered positive gains last month.
Macro hedge funds – which trade macroeconomic and geopolitical trends using equities, bonds, currencies, commodities and more – topped the performance table last month. Managers here rose 3.87% in March, the sector’s best monthly performance in two years. This, in turn, pushed the macro sector to almost 7% in Q1, its best quarter in more than 20 years, HFR said this week.
Systematic diversified macro funds led the way in March with a 4.46% monthly gain, as multi-strategy, commodities, and thematic diversified macro funds all added more than 3% last month.
Bigger performance picture
“In contrast to most of 2023, the macroeconomic environment in Q1 was dominated by expectations for falling inflation and interest rates, and improving expectations for economic growth, despite ongoing, fluid, uncertain and potentially volatile elevated geopolitical risk,” said HFR president Kenneth Heinz.
“Managers remain keenly focused on this tension between falling macroeconomic risk and rising geopolitical risk in 2024, with potential for sharp reversals, volatility and dislocation driven by either of these powerful trends,” Heinz added.
Equity hedge funds, which invest long and short across a range of stocks and sectors, are also riding high this year, ending Q1 up 5.50% following a 2.43% March advance.
All stock-picking strategies ended the month positively, with energy-focused equity strategies scoring a 3.8% March return, followed by trend-following quant directional strategies, which rose 3.16%. On a quarterly basis, healthcare hedge funds are up 10.87%, followed closely by quant directional managers with a 9.83% Q1 return.
Event-driven hedge funds - which look to capitalize on stock mispricings and other valuation anomalies stemming from mergers and acquisitions, bankruptcies, takeovers and other corporate events – also finished the first quarter strong.
Having ended January in negative territory, back-to-back gains in February (1.66%) and March (2.15%) have helped haul event-driven funds into positive territory, with a 2.85% Q1 gain. Special situations managers posted a 4.11% March return, while activists lead on a quarterly basis with a stellar 5.21% Q1 gain.
Meanwhile, fixed-income relative value hedge funds were up almost 1% last month, leading to a 2.46% Q1 advance. Convertible arbitrage and fixed income sovereign strategies rose about 1.5% for the month, which convertibles having now gained 4.11% year-to-date, and sovereigns adding 3.17% in the same three-month period.
The gap between winners and losers narrowed in March, with the top decile of constituents in HFR’s Fund Weighted Composite index advancing 9.5% on average, with the bottom decline falling about 2.1% - a top-to-bottom dispersion of 11.6% for the month. By comparison, the top-to-bottom performance dispersion in February was 15.8%.
Delving deeper, HFR noted the past five months – in which hedge funds have gained 11.1% – has been the industry’s strongest five-month run since the period ending in April 2021.
This article, “Macro managers surge as hedge funds deliver stellar Q1 returns” was originally published on April 16, 2024 on Alternatives Watch and is republished here with permission from BMV Digital, Inc.
