Hedge funds posted broad-based gains across all strategies in August, as equity markets again eclipsed record levels despite signs of weakening European economic growth and rising geopolitical tensions.
The HFRI Fund Weighted Composite Index® gained +1.6 percent in August, the strongest month since February, with gains across all strategies led by a resurgence in Macro & CTA strategies, as reported by HFR®, the established global leader in the indexation, research and analysis of the global hedge fund industry.
The HFRI Macro Index posted a gain of +2.1 percent, the strongest monthly gain since April 2011, as the Euro declined against the US dollar in anticipation of ECB economic stimulus measures. While Macro gains were spread across most constituent sub-strategies, gains were led by quantitative, trend-following CTA strategies, with the HFRI Macro: Systematic Diversified/CTA Index advancing +3.1 percent, the strongest gain since July 2012.
CTA strategies have endured a challenging environment in recent years, posting declines in each of the prior three calendar years, resulting in capital redemptions of $12.5 billion over the trailing five quarters. HFRI Macro: Multi-Strategy was up +2.5 percent for the month, while HFRI Macro: Currency and Commodity Indices gained +1.2 and +0.8, respectively.
Equity Hedge strategies also advanced in August, with the HFRI Equity Hedge Index gaining +1.6 percent, the third strongest monthly gain for 2014, bringing FY performance to +3.9 percent. EH gains were led by the HFRI EH: Technology/Healthcare Index and HFRI EH: Quantitative Directional Index, which returned +3.3 and +2.8 percent, respectively.
The HFRI EH: Energy/Basic Materials Index gained +2.2 percent for August, but leads EH sub-strategies YTD with a gain of +10.8 percent. For YTD 2014, the HFRI Equity Hedge Index leads both the Dow Jones Industrial Average and Russell 2000, while the strongest performing area, the HFRI EH: Energy/Basic Materials Index, has outperformed both the S&P 500 and the Nasdaq Composite.
Fixed income-based Relative Value Arbitrage strategies also advanced in August, the eleventh gain over the trailing 12 months, as yields fell across most issues and high yield credit tightened. The HFRI Relative Value Arbitrage Index gained +0.9 percent, extending YTD returns to +5.7 percent, and leading all main hedge fund strategies. RVA was led by Yield Alternative and Volatility sub-strategies, with the HFR indices for these up +3.8 and +1.9 percent, respectively. HFRI RVA: Asset Backed posted a narrow gain of +0.06 percent to notch the 33rd monthly gain in the past 34 months.
Similarly, the HFRI Event Driven Index rose +0.37 percent, extending the YTD gain for ED to +4.1 percent. ED was led by the HFRI Activist and HFRI ED: Multi-Strategy Indices, which gained +3.4 and +1.6 percent, respectively. With the August returns, HFRI Activist leads all ED sub-strategies on YTD basis with a gain of +5.9 percent.
"August was an exciting month for hedge fund performance with gains across all strategies, quickly recovering as equity markets rebounded from the late July sell off. Gains were both strong and balanced across strategies as well as fund sizes, ranging from the largest to smallest funds in the industry," stated Kenneth J. Heinz, President of HFR. "Recent Macro and CTA performance gains are encouraging, given the normalization process associated with an acceleration of the US economy, strategic positioning for stimulus measures by the ECB and the re-establishment of persistent, tractable trends across global currency and commodity markets. It is likely that continued gains in the Macro & CTA space, as well as across other hedge fund strategies, will drive strong industry performance and asset growth through 2H14 as these and other macroeconomic themes, including expanded M&A activity, US yield curve normalization and fluid geopolitical situations, develop in coming months."