HFR: Hedge Funds Post Fourth Consecutive Positive Month In June

Jul 8 2016 | 10:02pm ET

Hedge Fund Research’s HFRI Fund Weighted Composite Index is the latest industry benchmark to show the global hedge fund industry came through June in decent shape, despite massive dislocations in currency, equity, fixed income and commodity markets following Britain’s vote to leave the European Union. 

The HFRI Fund Weighted Composite gained 0.83% for the month and 2.25% for the second quarter, HFR said in a statement Frida. June’s performance pulled the measure into positive territory for the year to date, up 1.63%. Surprisingly, gains were led by macro strategies, which were largely expected to come under the most Brexit-related pressure but instead put in the strongest month since 2010 on the strength of quantitative CTAs, while Relative Value also turned in positive performance. On the other hand, Event-Driven and Equity Hedge were negative for the month.

The HFRI Macro Index surging 3% for the month, the strongest gain since December 2010 and saved primarily by strong performance in the HFRI Macro: Systematic Diversified/CTA Index substrategy, which advanced 4.4% for the month. Contributions came not only from currency exposures to long U.S. Dollar and Japanese Yen against sterling, which collapsed following the Brexit vote, but also from positioning in fixed income, commodities and equities. 

Elsewhere in the macro bucket, the HFRI Commodity Index rose 3.4%, the HFRI Active Trading Index added 3.2%, the HFRI Currency Index gained 1.4%, and the HFRI Discretionary Thematic Index rose 0.3%. Macro is now leading area of hedge fund strategy performance for the first half of the year, up 3.5% despite declining in each of the three prior months after a strong start to the year, HFR said.

Other key elements of HFR's data:

  • Fixed income-based Relative Value Arbitrage (RVA) strategies also gained for the month as yields plummeted on investor risk aversion, with the HFRI Relative Value Index adding 0.3% in June, bringing 1H16 performance to 2.3%. RVA sub-strategy performance was led by exposures to sovereign fixed income and yield alternatives, including energy infrastructure partnerships, with the HFRI RV: Sovereign Index advancing 1.4%, while the HFRI Yield Alternatives Index added 2.5%. 
  • Equity Hedge strategies turned in a mixed performance for June, as global equity markets posted steep losses immediately after the Brexit vote and then promptly recovered most of what they lost by the end of the month. The HFRI Equity Hedge Index declined -0.27% for the month, bringing 1H16 performance to -0.16%. The HFRI EH: Fundamental Value Index fell -0.8% in June, the largest EH sub-strategy decline, as Financials posted steep losses across all regions which were extended into month-end, while the HFRI EH: Short Bias Index added +2.4%. The short-bias index is now up 9.5% for the first half.  
  • Energy and materials continue to rebound. The HFRI EH: Energy/Basic Materials Index led EH sub-strategy performance for 1H16, with a gain of 10.3%. 
  • Event-Driven strategies also experienced mixed performance for the month, as risk aversion spiked, deal spreads widened and strategic acquisitions were re-evaluated by companies as a result of the Brexit vote. The HFRI Event-Driven Index declined -0.4% in June, paring its 1H16 gain to 1.9%. 
  • Activist and Multi-Strat were the weakest areas of ED sub-strategy performance, with these HFRI Indices declining -1.6% and -1.2%, respectively, for the month. Distressed hedge funds were the leading area of ED sub-strategy performance for both June and 1H16, with the HFRI ED: Distressed Index advancing 0.7% for the month and 3.9% YTD. 

"Hedge funds were positioned conservatively and defensively for an uncertain outcome of the Brexit vote,” stated Kenneth Heinz, president of HFR, in the statement. “The hedge fund industry continues to carefully position for additional, second-order impacts of Brexit in 2H16.”

“Economic and financial implications include impact for UK and EU growth, near term U.S. and Asian monetary policy, banking domicile and financial products passport distribution restrictions, as well as the political implications of immigration, UK political leadership transition and additional regional referendums,” he added. “In short, Brexit has dramatically increased the degree of global macroeconomic uncertainty for 2H16; hedge funds positioned for this dynamic environment posted strong gains in June and are likely to lead industry performance and growth in 2H16."

Established in 1992, HFR produces the HFRI, HFRX and HFRU Indices, the industry’s most widely used benchmarks of global hedge fund performance. HFR calculates over 100 indices of hedge fund performance ranging from industry-aggregate levels down to specific, niche areas of sub-strategy and regional investment focus.

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