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Fixed income-based Relative Value gains, Macro declines as US interest rates rise, geopolitical uncertainty remains

HFR releases Special Report: Presidential Politics and Hedge Funds

CHICAGO, (November 7, 2024) – Hedge funds posted declines in October on mixed strategy performance as investors positioned for the US Presidential election and as corporate earnings ranged widely from strong to weak, coupled with the continued escalation of military conflicts in the Middle East and Eastern Europe. The HFRI Fund Weighted Composite Index (FWC)® declined -0.7 percent in October, while the HFRI Asset Weighted Composite Index fell -0.6 percent for the month, according to data released today by HFR. Performance gains of +0.6 percent in the HFRI Relative Value Index were more than offset by declines in the HFRI Macro (Total) Index, which fell -2.0 percent in October.

HFR LAUNCHES SPECIAL REPORT: PRESIDENTIAL POLITICS AND HEDGE FUNDS

HFR is pleased to present a special research report featuring in-depth quantitative analysis on the performance of hedge funds through the lens of which US political party administration held the office of the president during specific time frames. This unique and insightful special report includes a complete historical comparison of presidential terms since 1990 across many financial, economic and political cycles. The report is available for complimentary download at https://www.hfr.com/product/presidential-politics-and-hedge-fund-performance

“This deep dive into hedge fund performance, viewed through the lens of presidential terms and the rising and falling stock of the main political parties, is a valuable tool for anyone looking to understand the historical trends and be as informed as possible as they look towards the future,” said Kenneth J. Heinz, President of HFR.

The recently launched HFRI Multi-Manager/Pod Shop Index declined -0.46 percent for the month as managers positioned for election volatility, while the HFR Cryptocurrency Index advanced an estimated +3.5 percent, increasing its YTD return to +21.7 percent through October.

Hedge fund performance dispersion contracted in October, as the top decile of the HFRI FWC constituents advanced by an average of +3.8 percent, while the bottom decile fell by an average of -7.3 percent, representing a top/bottom dispersion of 11.1 percent for the month. By comparison, the top/bottom performance dispersion in September was 13.1 percent. In the trailing 12 months ending October 2024, the top decile of FWC constituents gained +49.4 percent, while the bottom decile declined -12.2 percent, representing a top/bottom dispersion of 61.1 percent. Approximately forty-five percent (45%) of hedge funds produced positive performance in October.

Fixed income-based, interest rate-sensitive strategies led strategy performance in October, as US interest rates increased and equities declined heading into the early November US Presidential election, with the HFRI Relative Value (Total) Index gaining an estimated +0.6 percent for the month. RVA strategy performance was led by the HFRI RV: FI-Sovereign Index, which advanced +1.0 percent for the month, followed closely by the HFRI RV: FI-Asset Backed Index, which added +0.9 percent, increasing its YTD 2024 return to +8.4 percent.

Event-Driven (ED) strategies, which often focus on out-of-favor, deep value equity exposures and speculation on M&A situations, reversed recent monthly gains with a decline in October, as the HFRI Event-Driven (Total) Index fell -0.35 percent. ED sub-strategy declines were led by the HFRI ED: Activist Index, which fell -2.6 percent, though these were partially offset by gains in the HFRI ED: Credit Arbitrage Index, which advanced +3.45 percent, as managers positioned for a building M&A cycle through year-end, resulting from clarity on US presidential election, and improving economic outlook.

Equity Hedge (EH) funds, which invest long and short across specialized sub-strategies, also declined in October with the HFRI Equity Hedge (Total) Index falling an estimated -0.7 percent for the month to bring the YTD return to +9.6 percent, which leads all main strategy indices YTD 2024. EH sub-strategy declines were led by the HFRI EH: Quantitative Directional Index, which declined -2.0 percent for the month, though remains the leading area of performance across all sub-strategies with a YTD return of +14.3 percent through October.

Macro strategies led declines in October as US interest rates increased and investors positioned for the US Presidential Election, with the HFRI Macro (Total) Index falling -2.0 percent. Macro sub-strategy declines were led by the HFRI Macro: Systematic Diversified Index, which posted a monthly decline of -3.3 percent on weakness in quantitative, systematic, trend-following exposures. Partially offsetting these declines, the HFRI Macro: Discretionary Thematic Index gained +0.15 percent for the month.

Liquid Alternative UCITS strategies also declined in October, as the HFRX Absolute Return Index posted a narrow decline of -0.07 percent while the HFRX Global Hedge Fund Index fell -0.66 percent. Strategy declines were led by the HFRX Macro Index, which fell -1.75 percent, while the HFRX Relative Value Index posted a narrow decline of -0.21 percent.

“Hedge funds posted mixed strategy performance in October as the US 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. Hedged fixed income-based Relative Value Arbitrage strategies successfully navigated this environment, while directional Equity and Event strategies posted mixed performance,” stated Kenneth J. Heinz, President of HFR. “With clarity on the US 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. It is likely that institutional investors seeking to maximize their exposure to these powerful trends and opportunities, while minimizing risk and uncertainty, will increase exposure to hedge funds which have demonstrated both historically and recently through these market cycles, their strategy’s robustness as a mechanism for achieving these portfolio objectives in 2025.”

Comments reference Flash Update performance figures as posted on November 7th, 2024.