Stock Picking Hedge Funds Post Strong Gains Despite August Volatility
August was a month of divergent trends for the hedge fund industry, as equity hedge funds experienced a year-to-date increase while managed futures experienced their fourth consecutive monthly loss, according to PivotalPath.
The PivotalPath Composite Index, the primary industry-wide benchmark of the hedge fund research and intelligence provider, experienced a 0.3% increase in August, resulting in a year-to-date return of 7.2%.
Long/short strategies effectively navigated the early-month volatility by increasing short positions and reducing longs, resulting in a 1.4% monthly rise for equity hedge funds.
Conversely, managed futures funds, which employ computer-based models and machine learning algorithms to trade rising and falling market patterns, experienced a decline of 2.8% during what PivotalPath characterized as “choppy” markets. Quantitative macro hedge funds also pulled back, shedding 1.4% in August, while event-driven strategies gained 1.1%.
Elsewhere, equity diversified hedge funds (0.9%), credit strategies (0.7%), multi-strategy managers (0.5%) and quant equity funds (0.1%) all posted gains of less than 1%.
Despite the summer volatility, equity-focused hedge funds have maintained their longer-term momentum. The PivotalPath Equity Sector Index has increased by 11.6% year-to-date, while the Equity Quant Index has increased by 10.9% and the Equity Diversified Index has added 9.6%. Since January, credit hedge funds have increased by 7%, while multi-strategies have increased by 6.9%.
On the downside, recent losses have eroded managed futures and macro returns, which now stand at just 2.2% and 2.9%, respectively, for the year.
“In light of creeping volatility and an upcoming fiscal regime shift, equity specialists are also changing tack, remaining broadly positive, but with a more hawkish skew. This was demonstrated in August when funds increased short positions and marginally net sold longs across most sectors and regions,” the company wrote.
PivotalPath tracks the performances of more than 2,800 institutionally relevant hedge funds, spanning over $3 trillion of industry assets, on behalf of over $340 billion in client hedge fund capital.