Hedge Funds Successfully Navigate August Volatility: HFR
Hedge funds were up modestly in August, despite large cap equities troubles to start the month, with composite gains of 0.25%, according to Hedge Fund Research’s Fund Weighted Composite Index. Performance was led by equity hedge and fixed income-based relative value arbitrage strategies.
Gains in equity hedge funds, which invest long and short across specialized sub-strategies, were led by healthcare and technology sub-strategies. The HFRI Equity Hedge (Total) Index advanced an estimated +0.8% for the month to bring its year-to-date return to 9.0%, leading all strategy indices over the first eight months of the year.
“Hedge funds navigated the historic spike to financial market volatility to begin the month of August, with leadership from equity hedge, relative value and multi-manager pod shops as global equities posted steep declines to begin the month as investors positioned for global economic weakness, falling interest rates and continued geopolitical uncertainty,” said Kenneth J. Heinz, HFR president.
Relative value strategies rose an estimated 0.4% in August. Leading the way was the convertible arbitrage index, which gained 1.1%. Event-driven strategies, which often focus on out-of-favor, deep value equity exposures and speculation on M&A situations, posted a mixed performance after leading gains in July, as advances in activist and special situations exposures were offset by declines in other event-driven sub-strategies.
In a bid to further capture the gains in the multi-manager arena, HFR launched the multi-manager/Pod Shop Index, which is comprised of funds of various strategy types that utilize a multi-manager/pod structure, whereby fund capital is allocated to multiple independent investment teams.
The Pods are autonomous but generally operate within certain portfolio management or risk guidelines, and capital is allocated to or from these Pods in a discretionary manner under the supervision of a CIO, as defined by HFR.
HFR estimates that approximately $425 billion is currently managed in multi-manager funds. The new index posted gains of 1.6% during August. “Multi-Manager Pod Shop hedge funds were among the leading areas of hedge fund performance, with these able to tactically adjust portfolio exposures through the volatility and weakness to drive gains for the month,” added Heinz.