Hedge Funds Top Off Q3 with Another Strong Performance
Event-driven managers led the way, and equity-focused funds advanced into double-digit territory for the year, as hedge funds concluded a successful third quarter with their third consecutive monthly gain in September.
The latest performance data from Hedge Fund Research revealed that hedge funds generated a 1.23% monthly return in September, which is in line with the 0.25% return in August and the 1.27% gain in July.
Consequently, the primary industry-wide Fund Weighted Composite Index of HFR, which evaluates the performance of more than 1,400 single manager hedge funds across all strategy types globally, has increased by 8.06% since the beginning of 2024.
Overall, approximately 70% of the hedge funds that HFR monitors concluded September in the black. Kenneth Heinz, president of HFR, observed that the performance of these funds was robust across all strategies.
“Hedge funds gained to conclude the volatile third quarter, which included one of the largest intra-quarter spikes and dislocations in financial market volatility in several years, as geopolitical risks remained at generational levels, and as economic risks shifted from inflation to weakening global economic growth,” Heinz said.
Event-driven hedge funds, which trade out-of-favor, deep value equities, aiming to capitalize on stock mispricings and other valuation anomalies stemming from mergers and acquisitions, bankruptcies, takeovers and other corporate events, were up 1.27% in September, the best overall monthly return.
The event-driven space is poised for an increase in M&A activity as the final quarter approaches, with credit arbitrage (2.19%), special situations (2.10%), multi-strategy (1.87), and activist managers (1.22%) achieving the most significant monthly gains. Year-to-date, the sector, as measured by the HFR Event-Driven (Total) Index, is up 7.85%.
Meanwhile, HFR’s Equity Hedge (Total) Index, which tracks stock-picking hedge fund strategies, returned 1.22% in September. Fundamental growth managers added 3.16%, while equity-focused multi-strategies, quant directional, energy-focused equity strategies and fundamental value hedge funds were all up over 1%. Tech hedge funds added 0.92%, but healthcare-focused managers lost 0.43%.
The broad increases throughout the equity hedge fund spectrum increased average year-to-date returns to 10.16%, the greatest overall year-to-date performance among all hedge fund strategy types.
According to Heinz, macro hedge funds returned to positive territory in September after four consecutive months of losses, as managers anticipated a key inflection point in interest rate forecasts.
Macro strategies, which use equities, bonds, currencies, commodities, and other assets to speculate on macroeconomic and geopolitical developments, increased by 1.27% last month, bringing year-to-date returns to 4.50%. Discretionary thematic funds outperformed the market with a monthly return of 2.98%, while active trading methods and multi-strategy macro both earned 2.12%.
Meanwhile, HFR’s newly launched Multi-Manager/Pod Shop Index, which measures the monthly performances of larger multi-manager and “pod” hedge funds, such as Millennium and Citadel, gained 0.6% in September, as funds positioned for election volatility.
