According to Chicago-based hedge fund research and consulting firm HFR hedge funds, as measured by the HFRI Fund Weighted Composite Index (FWC), rose 3.2% in July, marking the third highest monthly gain for this index since 2010.
July Hedge Fund Performance
As mentioned above, the HFRI FWC index rose 3.2% in July, one of the most robust monthly gains seen in this index in quite a few years. Hedge fund gains in July were spread across all strategies, led by strength in Equity Hedge, Macro, and Emerging Markets. Over the first seven months of the year, the HFRI FWC index is showing a modest loss of -0.3%.
The HFRI Equity Hedge (Total) Index led strategy performance for the month, surging +3.7%, with the strongest gains coming from the Energy and Technology sectors. On a year-to-date basis the Equity Hedge Total index has posted a modest gain of 0.3%. The HFRI EH: Sector-Energy Index surged +5.0% in July, while the HFRI EH: Technology Index jumped +4.1% during the month. The year-to-date performance for the Technology index is +14.1%, leading all sub-strategies for the year.
The HFRI Macro (Total) Index gained +3.5% for the month to increase its YTD return to +2.9%. July performance was led by the HFRI Macro: Multi-Strategy Index, which surged +5.0%, and the HFRI Macro: Systematic Diversified Index, which advanced +3.9%, the strongest monthly return since January 2015. For the year, the HFRI Macro: Currency Index leads Macro sub-strategy performance with a +8.2% return.
On a regional basis, the HFRI Emerging Markets (Total) Index showed the greatest strength during July, surging 5.2% thereby pushing the YTD performance for this index to +0.8%. This performance was driven by exposure to Russia and Eastern Europe (+10.3%); Latin America (+8.2%); and China (+7.8%). On a year-to-date basis, the HFRI Emerging Markets: China Index has posted a robust 14.0% gain.
Our Take
The good news is that globally, hedge funds posted a strong performance during July, a development that has encouraged institutional investors to look at increasing their exposure to hedge funds and alternative strategies.
This development, on top of the continued market uncertainty created by the global COVID-19 pandemic, could be seen to be constructive trends for sell-side and independent research providers. As we have mentioned in the past, buy-side engagement with research providers has risen in a robust fashion over the past five months. However, it is unclear whether this increased demand for research would result in higher research payments from the buy-side. We suspect that improved hedge fund performance and increased institutional asset flows into hedge funds might make them more willing to boost research payments in an effort to reward their most useful providers. We will see in the next few months as asset managers start making research payments for the 2nd Qtr of 2020.