Hedge Funds Thrive in Volatile Markets with 11% YTD Equity Hedge Gains — Evening Brief – 09.19.25
Global equity hedge funds are emerging as standout performers in 2025, with Trump’s tariff policies, prospects for lower interest rates, and rising M&A activity combining to create fertile ground for long/short strategies. Despite U.S. equity indexes hitting record highs last week, hedge funds are proving adept at exploiting volatility and sector dispersion.
In August, equity hedge funds led the industry, with HFR’s main index gaining 3.3%, supported by strength in multi-strategy, healthcare, fundamental growth, and fundamental value approaches. The strong month capped a stretch in which nearly 80% of hedge funds delivered positive performance, according to the Chicago-based index provider. Year-to-date, HFR’s Equity Hedge Index is up 11%, confirming equity hedge as one of the industry’s top-performing strategy groups.
Other data providers corroborate this momentum. HSBC’s hedge fund performance tracking shows that European and Japanese long/short equity managers have ranked among the best performers through the first eight months of the year, underscoring how global dispersion is creating opportunities beyond the U.S.
According to HFR President Kenneth Heinz, commodity-linked trades, cryptocurrency exposures, interest rate-sensitive positioning, and M&A-driven activity have reinforced a “powerful risk-on sentiment” in recent months.
“Leading managers are likely to remain tactically positioned for either continuation or reversals of these trends in this fluid environment, adjusting portfolio exposures accordingly,” he noted. “Institutional investors looking to manage exposure to these trends are likely to increase allocations to managers which have demonstrated success through recent risk-off and risk-on cycles.”
Event-driven strategies have also benefited from the environment. The HFRI Event-Driven (Total) Index rose 2.0% in August, marking a four-month surge of 8.8% since mid-Q2. Sub-strategies were led by activist managers, with the HFRI ED: Activist Index up 4.2%, and multi-strategy event-driven funds returning 2.3% in the month.