According to Chicago-based hedge fund research and consulting firm HFR, hedge funds posted a modest 0.5% gain in August, despite falling U.S. equities as the Federal Reserve warned that they plan to continue raising interest rates in an effort to fight inflation.
August 2022 Hedge Fund Performance
According to data released a few weeks ago, the HFRI 500 Fund Weighted Composite Index posted a modest gain of 0.47% in August 2022. This advance partially reversed the weakness seen earlier this year – narrowing hedge funds’ year-to-date losses to -2.51%.
Uncorrelated Macro strategies, were the strongest hedge fund category in August as hedge funds which followed this strategy posted a 2.4% gain during the month. Two Macro sub-strategies which posted the greatest strength during August include the HFRI 500 Macro: Commodity Index which surged 6.3% and the HFRI 500 Macro: Multi-Strategy Index which rose 2.81% during the month. On a year-to-date basis, the HFRI 500 Macro Index has risen 14.64%, making these type of hedge funds the best performing during the first eight months of 2022.
Event-Driven strategies, which often focus on out-of-favor, deep value equity exposures and
speculation on M&A situations, also advanced in August as the HFRI 500 Event-Driven Index gained +0.71% for the month. The Equity-Driven sub-strategies which paced August’s hedge fund performance include the HFRI ED 500: Multi-Strategy Index, which rose +1.43%, and the HFRI ED 500: Merger Arbitrage Index, which added +0.96% for the month. Over the first eight months of 2022, the HFRI 500 Event Driven Index posted a 5.82% decline.
Relative Value strategies also rose modestly during August as the HFRI 500 Relative Value Index gained 0.28% during the month. This performance was paced by a 3.27% increase in the HFRI 500 RV: Fixed Income – Sovereign Index and a 0.77% increase in the HFRI 500 RV: Fixed Income – Convertible Arbitrage Index. On a year-to-date basis, the HFRI 500 Relative Value Index posted a 0.60% gain.
Equity Hedge strategies, which invest long and short across specialized sub-strategies, was the weakest performing hedge fund category, as the HFRI 500 Equity Hedge Index fell -0.84% during August. This drop was paced by a 3.70% decline in the HFRI 500 EH: Quantitative Directional Index and a 2.56% drop in the HFRI 500 EH: Multi-Strategy Index. Over the first eight months of 2022, the HFRI 500 Equity Hedge Index recorded a performance of -11.37%.
The positive performance for hedge funds in August was particularly constructive as the U.S. equity markets fell, interest rates rose, and the markets generally accepted the belief that Federal Reserve monetary policy would remain restrictive for the foreseeable future in an effort to combat inflation. The inversely correlated gains seen from most hedge fund strategies in August extended the strong performance for most hedge funds in July.
The modest weakness seen from hedge funds so far this year leads us to remain 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 loath to pay their external research providers any more than they already are for their research.