According to Chicago-based hedge fund research and consulting firm HFR, hedge funds as measured by the HFRI 500 Fund Weighted Composite Index surged 2.11% in June 2023 as artificial intelligence and broader technology led gains complemented by Fundamental Growth, Activist, and Commodity sub-strategies.
HFRI 500 June Performance
According to HFR, the HFRI 500 Fund Weighted Composite Index surged +2.11% in June, bringing hedge funds’ year-to-date performance to 2.23%. Over the past twelve months, the HFRI 500 Fund Weighted Composite Index has risen 2.94%. The HFRI Institutional Fund Weighted Composite Index, which measures the performance of the largest funds to report performance (in excess of USD $500 mln in AUM) rose 1.55% during June.
Event-Driven strategies, which often focus on out-of-favor, deep value equity exposures and
speculation on M&A situations, was the strongest performing hedge fund category during June as the HFRI 500 Event-Driven Index posted a 2.79% gain for the month. The Equity-Driven sub-strategies which paced June’s hedge fund performance include the HFRI 500 ED: Multi-Strategy Index, which rose +3.89%; the HFRI 500 ED: Special Situations Index, which added +3.57% for the month; and, the HFRI 500 ED: Event Driven ex-Merger Arbitrage Index which posted a 3.38% gain.
Equity Hedge strategies, which invest long and short across specialized sub-strategies, also experienced significant strength, as the HFRI 500 Equity Hedge Index rose 2.61% during June. This rise was paced by the 4.17% gain in the HFRI 500 EH: Quantitative Directional Index; the 3.72% surge in the HFRI 500 EH: Fundamental Growth Index; and, the 3.07% gain in the HFRI 500 EH: Multi-Strategy Index.
Uncorrelated Macro strategies also saw gains during June, rising 1.60%. The Macro sub-strategies which posted the greatest strength during June include the HFRI 500 Macro: Commodity Index which rose +3.69% during the month; the HFRI 500 Macro: Systematic Macro Index which rose +2.16%; and the HFRI 500 Macro: Multi-Strategy Index which also rose +1.84%.
Relative Value strategies also posted modest gains during June as the HFRI 500 Relative Value Index rose 1.11% during the month. This performance was paced by a 2.56% increase in the HFRI 500 RV: Fixed Income – Sovereign Index; the 1.94% rise in the HFRI 500 RV: Fixed Income – Asset Backed Index; and the 1.60% gain in the HFRI 500 RV: Multi-Strategy Index.
As a result of the strong hedge fund performance seen in 2Q23, total global hedge fund capital is estimated to have risen to $3.95 trillion, a quarterly increase of over $60 billion. This marks the third consecutive quarter that hedge fund assets have increased. Investors allocated an estimated $3.6 billion in new capital to the hedge fund industry in 2Q23, the second consecutive quarter of net asset inflows, with inflows led by Equity Hedge strategies.
The strong performance seen in hedge funds during June reflected investors’ bullish sentiment surrounding artificial intelligence and the growing belief that the US Federal Reserve is likely to limit future interest rate hikes given a moderation in inflation.
Kenneth J. Heinz, President of HFR explained the performance of hedge funds during June, saying “Hedge funds surged in June, led by growth equity exposures and, specifically, artificial intelligence. While gains were driven by these dynamic exposures, industry performance was strong across-the-board, including leadership from Activist and Quantitative funds, as all four main strategies advanced for the month. While the transformative impact of AI has begun and accelerated in recent months, it has the potential to impact a wide range of industries with exponential growth while transforming competitive landscapes, albeit with expected high volatility and potential for extreme dislocations as these evolutionary transformations develop. Institutional investors seeking access to these specialized, powerful trends are likely to allocate and expand commitments to managers which have demonstrated their capacity and capabilities through the early stages of this transformative market dynamic.”
Despite the positive performance seen from hedge funds during June, hedge funds have severely underperformed the overall US equity markets in 2023. The HFRI 500 Fund Weighted Composite Index has risen 2.23% on a year-to-date basis, whereas the S&P 500 Index has surged 16.9% on a total return basis over the first half of 2023. The big question for us here at Integrity Research is whether this underperformance will have a knock on impact on the research industry as hedge funds have traditionally been some of the most aggressive users of sell-side and independent research? We suspect that most research industry professionals are desperately hoping that hedge funds remain dedicated to boosting their performance throughout the remainder of 2023 – a trend that is likely to help support sell-side and IRP revenue.