Global hedge funds recorded their strongest first-half performance since 2013, according to data from hedge fund research firm PivotalPath.
Returns were supported by successful trades in healthcare, technology and energy, as managers navigated volatile market conditions.
April Delivers Record Hedge Fund Gains
April was a standout month for the industry.
Hedge funds gained 3.7% during the month, making it the strongest April on record, according to PivotalPath data.
Stock-Trading Hedge Funds Lead Performance
Stock-focused hedge funds ended June with double-digit gains for the year so far.
A Goldman Sachs client note seen by Reuters said these funds benefited from their ability to manage crowded trades effectively.
According to the note, stockpickers returned 4% in June. Hedge funds using fundamental analysis to evaluate company financials gained 18.4% during the quarter.
That marked their strongest quarterly performance in Goldman’s records. Their year-to-date return stood slightly lower at 17.4%.
Healthcare and Momentum Trades Boost Returns
Goldman said larger positions, healthcare exposure and participation in trades with strong momentum helped drive gains.
However, not all trades worked in favor of hedge funds.
Losses came from sharp market swings in June, exposure to South Korea’s surging stock market and short positions that moved against managers as asset prices continued to rise.
Chip Stocks Rally as Magnificent Seven Struggle
The second quarter was the strongest on record for the U.S. SOX semiconductor index.
However, June was a difficult month for the Magnificent Seven technology stocks.
The Roundhill Magnificent Seven ETF fell 9% in June. This was its largest monthly decline in more than a year.
Oil Prices Ease as Rate Expectations Shift
Oil prices have fallen back to levels seen before the Iran conflict.
At the same time, markets still expect at least one Federal Reserve rate hike by the end of the year. However, the latest U.S. jobs data reduced some of those rate hike expectations.
Systematic Hedge Funds Post Smaller June Gains
Hedge funds that use systematic models to identify trades gained 1.1% in June.
Losses near the end of the month limited their performance. Still, this group remained up 11.3% for the year to date, according to Goldman.
Volatility Hits Quant and Macro Strategies
A separate note from Winton, an $18 billion systematic hedge fund, said losses for systematic traders came from volatile trading in major U.S. companies and Chinese stocks.
Short positions in fixed income also hurt performance. Long-dated U.S. Treasuries were a particular source of weakness.
Currency Trades Deliver Mixed Results
Global macro funds, trend followers and commodity trading advisers made gains from trades in the Canadian dollar and Japanese yen.
However, losses in the Australian dollar, British pound and Norwegian krone were larger than those gains, according to Winton.
Faster Strategies Handle Volatility Better
Winton noted that many systematic strategies have limits on how long they must stay in a trade.
Faster strategies were better able to adjust to choppy market conditions. This helped them manage volatility more effectively than slower-moving models.
