According to Chicago-based hedge fund research and consulting firm HFR, hedge funds posted a modest 1.3% gain in July, despite accelerating inflation, interest rate hikes by the US Federal Reserve, and the economy entering a recession.
July 2022 Hedge Fund Performance
According to data release recently, the HFRI 500 Fund Weighted Composite Index posted a modest gain of 1.3% in July 2022. This advance was a strong reversal of the declines seen in the first half of the year – narrowing hedge funds’ year-to-date performance to -2.7%.
Equity Hedge strategies, which invest long and short across specialized sub-strategies, was the strongest performing hedge fund category, as the HFRI 500 Equity Hedge Index rose +3.25% during July. This gain was paced by a 4.38% surge in the HFRI 500 EH: Fundamental Growth Index, and a 4.35% rise in the HFRI 500 EH: Multi-Strategy Index.
Event-Driven strategies, which often focus on out-of-favor, deep value equity exposures and
speculation on M&A situations, also advanced in July as the HFRI 500 Event-Driven Index gained +2.37% for the month. The Equity-Driven sub-strategies which paced July’s hedge fund performance include the HFRI ED 500: Activist Index, which surged +4.47%, and the HFRI ED 500: Multi-Strategy Index, which added +3.69% for the month.
Relative Value strategies also rose during July as the HFRI 500 Relative Value Index gained 1.51% during the month. This performance was paced by a 3.59% increase in the HFRI 500 RV: Fixed Income – Asset Backed Index and a 1.46% gain in the 500 RV: Fixed Income – Sovereign Index.
Uncorrelated Macro strategies, which posted gains for most of the year, was the weakest hedge fund category in July as hedge funds which followed this strategy posted a 1.56% decline during the month. Two Macro sub-strategies which posted the greatest weakness during July include the HFRI 500 Macro: Systematic Diversified Index and the HFRI 500 Macro: Systematic Directional Index which both dropped 2.98% during the month.
July’s rebound in the US equity markets enabled hedge funds to post their strongest gains in 15 months as the US economy entered a recession and the US Federal Reserve continued to hike interest rates to dampen inflationary pressures. Despite July’s equity market recovery, uncertainty surrounding global supply chains, energy markets, and geopolitical risks promote continued turmoil and volatility that hedge fund managers are struggling to address.
The overall weakness seen from hedge funds so far this year leads us to be modestly pessimistic about the institutional research marketplace as hedge funds are traditionally the most aggressive users of sell-side and independent research. As a result, we suspect that many hedge funds will be cautious about paying their sell-side and independent research firms any more than they already are for their research.