According to Chicago-based hedge fund research and consulting firm HFR, hedge funds posted a 1.3% gain in October, as equity markets rose, with the DJIA surging to the largest monthly gain in over 40 years, while inflation remained high, and the US Federal Reserve prepared to raise interest rates in an effort to combat rising prices.
October 2022 Hedge Fund Performance
According to data released a few weeks ago, the HFRI 500 Fund Weighted Composite Index posted a modest gain of 1.3% in October 2022. This advance partially reversed the weakness seen earlier this year – narrowing hedge funds’ year-to-date performance to -3.2%.
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 +2.69% for the month. The Equity-Driven sub-strategies which paced October’s hedge fund performance include the HFRI 500 ED: Distressed/Restructuring Index, which rose +8.64%, and the HFRI 500 ED: Activist Index, which added +4.63% for the month. Over the first ten months of 2022, the HFRI 500 Event Driven Index posted a 6.47% decline.
Equity Hedge strategies, which invest long and short across specialized sub-strategies, was another strong performing hedge fund category, as the HFRI 500 Equity Hedge Index rose 1.6% during October. This rise was paced by a 3.58% gain in the HFRI 500 EH: Fundamental Value Index and a 2.41% rise in the HFRI 500 EH: Healthcare Index. Over the first ten months of 2022, the HFRI 500 Equity Hedge Index recorded a performance of -14.53%.
Uncorrelated Macro strategies also rose in October as hedge funds which followed this strategy posted a 0.86% gain during the month. Two Macro sub-strategies which posted the greatest strength during August include the HFRI 500 Macro: Multi-Strategy Index which posted a 1.97% gain during the month and the HFRI 500 Macro: Commodity Index which rose 1.77%. On a year-to-date basis, the HFRI 500 Macro Index has risen 17.78%, making these type of hedge funds the best performing during the first ten months of 2022.
Relative Value strategies also rose modestly during October as the HFRI 500 Relative Value Index gained a mere 0.09% during the month. This performance was paced by a 3.43% increase in the HFRI 500 RV: Fixed Income – Sovereign Index and a 1.41% 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 drop of 0.68%.
The positive performance for hedge funds in October was particularly constructive as interest rates rose and market volatility continued as the markets generally accepted the belief that Federal Reserve monetary policy would remain restrictive for the foreseeable future in an effort to combat inflation.
Despite the gains in most hedge fund categories in October, hedge fund performance remained underwater for most strategies on a year-to-date basis (excluding macro funds). The 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 won’t be willing to pay their external research providers any more than they already are.