The Streak Ends — Evening Brief – 11.15.24
Hedge funds’ remarkable three-month streak of profits ended in October, as some managers were caught off guard by inconsistent corporate earnings and escalating political uncertainty in anticipation of the U.S. election, according to recent data from Hedge Fund Research.
Hedge funds lost 0.73% in October, the first monthly decline since June, according to HFR’s data. Only 45% of hedge funds tracked by HFR had positive performances in October, down from 70% in September, with macro managers, computer-based quantitative strategies, and activist hedge funds suffering the most losses.
Notwithstanding the decline, the primary Fund Weighted Composite Index, which assesses single manager strategies across all global hedge fund strategies, remains up 7.43% since the beginning of 2024, with an estimated growth of 3% in the third quarter.
Equity-focused hedge funds and event-driven managers experienced slight losses, declining 0.72% and 0.35% respectively, however global macro strategies suffered more significantly, plummeting almost 2% for the month. Only fixed income-oriented, interest rate-sensitive relative value strategies experienced an increase, rising by 0.62%.
Macro hedge funds, which speculate on macroeconomic and geopolitical developments through equities, bonds, currencies, commodities, and other assets, have experienced year-to-date gains reduced to 2.68% after a 2.02% decline in October.
“Hedge funds posted mixed strategy performance in October as the U.S. election rose to a dramatic crescendo to begin November, with performance most directly impacted by rising interest rates, corporate earnings reports which ranged widely from strong to weak, and small, broad-based equity market declines,” said HFR president Kenneth Heinz.
Systematic diversified strategies experienced the most significant decline, decreasing by 3.28%, while commodity-focused macro funds fell by 1.73% and multi-strategy macro funds declined by 1.39%. Only discretionary theme managers concluded October with a modest gain of 0.15%.
Equity-focused strategies, the predominant sub-sector of the global hedge fund business, have achieved a return of 9.59% since the beginning of the year. Notwithstanding the 0.72% decline in October, many stock-picking techniques yielded positive results: equity market neutral hedge funds increased by 2.04%, technology equity managers rose by nearly 1%, and energy and basic materials strategies advanced by 0.75%.
Conversely, quantitative directional equity hedge funds experienced a decline of around 2%, while they maintained a year-to-date increase of more than 14%. Additionally, multi-strategy equity (-1.30%), fundamental value (-1.37%), and fundamental growth (-0.48%) also recorded monthly losses.
Looking ahead, Heinz said: “With clarity on the U.S. election results, investors and managers are actively adjusting exposures to their expectations for priority policy shifts on international trade, manufacturing, immigration, energy, security with these changes resulting in significant impacts for monetary and fiscal policy, supply chains, M&A and geopolitical risk.”