Hedge funds record strongest first-half year performance since 1999

Hedge funds overall posted small gains in June, completing the strongest first half of a year since 1999.

The industry has recorded positive returns for nine consecutive months, buoyed by optimism about the reopening of the US and European economies after the pace of vaccinations increased and despite first indications of inflationary pressure in both places.

The HFRI Fund Weighted Composite Index gained 0.4% in June, and 10% through the first six months of 2021. In the trailing nine-month period ending June 2021, the index surged by as much as 22%.

Data provider HFR reported that equity hedge strategies, which invest long and short across specialised sub-strategies, extended recent gains in June, as many equity markets reached record highs.

The S&P 500 and NASDAQ for instance closed the first half of 2021 at or near record highs, rising by 2.22% and 5.49% in June respectively.

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Kenneth Heinz, president of HFR, said hedge funds extended gains in June to complete the strongest first half of a calendar year since 1999, although performance drivers and market sentiment shifted for the month. In particular, he noted a moderation of the broader macroeconomic reopening, and higher interest rates and inflation trends which have defined the previous three quarters, as interest rates declined and realised equity market volatility remained elevated.

He said, “While investor optimism regarding the global reopening remains strong and justified, hedge fund managers and investors are positioning for a dynamic performance environment which may shift rapidly as a function of political developments, new information on virus mutation and vaccine efficacy, as well as demand shifts relating to consumer, technology and energy trends.”

Returns were mostly positive across geographic mandates in June with Asia, excluding Japan, and emerging market hedge funds in the lead with returns of 2.04% and 1.20% respectively, data provider Eurekahedge reported.

Across strategies, distressed debt and arbitrage outperformed their strategic peers with returns of 4.30% and 0.70% respectively throughout the month.

The Eurekahedge Hedge Fund Index was up 0.15% in June and 7.95% for the year to date.

About 81.1% of funds in the index generated positive returns in 2021.

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