Evening Brief – 02.20.24
Hedge Funds Continue Bullish Run
Hedge funds began 2024 on a strong footing, with credit arbitrage, technology equities, and fixed income strategies leading the way in January.
Hedge Fund Research’s (HFR) latest performance data showed that hedge funds continued their bullish 2023 run into the new year, providing significant gains across the strategy spectrum as managers positioned for interest rates to remain elevated through early 2024.
The Fund Weighted Composite Index, HFR’s key industry benchmark, rose 0.28% in January. The index, which measures approximately 1,400 single manager hedge funds across all strategy types globally, increased by about 8% last year.
“Given the evolving and fluid geopolitical and macroeconomic environment, managers are actively and dynamically managing portfolio exposures and risk with a more intense focus on positive optionality, convexity and the increased potential for destabilizing dislocations,” HFR president Kenneth Heinz said.
Fixed income-based, interest rate-sensitive hedge fund strategies, which finished 2023 up nearly 7%, led the pack in January, returning 0.62% as expectations for lower interest rates moderated despite a robust US economic outlook. Almost all sub-strategy ended the month in positive territory, with corporate bond funds, up 1.14%, and convertible arb strategies, up 1.06%, leading the way.
Long/short equity hedge funds returned 0.21% in January, after finishing 2023 up more than 11% for the year. Tech-focused stockpickers rose 3.16%, profiting on the extended run in tech names early in the new year, while healthcare hedge funds and equity market neutral strategies gained nearly 2% each, with quant directional managers gaining 1.82%.
Macro managers, who use equities, bonds, currencies, commodities, and other assets to discover and trade on larger macroeconomic and geopolitical trends, contributed only 0.43% last month.
The improvement somewhat offsets the sector’s 0.53% annual loss in 2023, with commodities-focused strategies gaining 1.36%, multi-strategy up 1.25%, and systematic diversified up 0.46%.
In line with the overall improvement in the credit hedge fund landscape, credit arbitrage managers returned 2.37%, while special situations strategies returned 0.52%. However, extensive losses elsewhere, including activist managers’ 2.24% drop, and losses of more than 1% for merger arbitrage and distressed/ restructuring funds, subsequently pulled the sector down.
Overall, about 60% of hedge funds ended January with gains.The top decile of the HFR Fund Weighted Composite constituents gained an average of 6.06%, while the bottom decile lost an average of 6.75%, resulting in a top-to-bottom dispersion of 12.81%, according to HFR. In comparison, the December dispersion was 16.73%.