According to data provided by HFR, Inc. (formerly Hedge Fund Research), hedge funds in July recorded their strongest monthly performance since January due to strength in Equity Hedge, Technology and Emerging Markets strategies.
July 2017 Hedge Fund Performance
As you can see from the table below, the HFRI Fund Weighted Composite Index posted a +1.2% gain in July, marking the ninth consecutive monthly gain for this index and the 16th increase in the past 17 months. This brings the year-to-date performance of the overall hedge fund index to +4.8%.
One of the main drivers of July performance came from the HFRI Equity Hedge (Total) Index, which rose +1.7%, bringing YTD performance to +7.7%. This tops the full year returns of the Equity Hedge Index in each of the prior three calendar years. The Technology and Fundamental Growth strategies provided the strongest contributions to Equity Hedge performance in July, with both the HFRI Technology Index and HFRI Fundamental Growth Index gaining +2.3%.
Another contributor to July’s strong performance was the HFRI Emerging Markets (Total) Index, which surged +3.6% in July, bringing YTD performance to +13.5%. Emerging Markets performance was led by the HFRI EM: Latin America Index, which surged +6.1% in July, bringing YTD performance to +12.4%. In addition, the HFRI EM: China Index rose +4.9% in July bringing YTD performance for this index to +20.9%.
Kenneth J. Heinz, President of HFR explained the July performance, “After a strong 1H17, which saw inflows resume and assets reach a record milestone, hedge funds posted a strong beginning to 2H17 with the highest monthly gain since January despite increasing geopolitical and global trade tensions. With equity and fixed income markets near all-time highs and implied volatilities near historical lows, forward-looking and institutional investors are expanding their allocations to alternatives as a mechanism to manage and reduce overall portfolio beta while capturing specialized exposures to sophisticated alpha and risk premia strategies.”
The strong performance for hedge funds in July, following a pickup in asset inflows in the first half of the year could bode well for alternative investments as institutional investors are being rewarded with strong performance for their increased allocations into hedge funds.
Research providers could also view this improved hedge fund performance in a positive light as hedge funds have traditionally been heavy consumers of sell-side and independent research. In fact, we would not be surprised to see external research providers increase their marketing efforts with hedge funds over the coming six months as long only managers are likely to be cutting back on their research budgets due to regulatory pressures brought on by MiFID II.