Hedge fund performance year-to-dates - value creation

With the SPX index up just over 1.6% year to date, it may be good to see what alternative investments have done as we move into the last month of the second quarter. Looking at the HFR hedge fund indices, we find that hedge funds have been able to best the stock market returns at lower volatility. Of course, these indices are not investable, but the numbers provide some insight on relative performance. Volatility, fundamental growth, multi-strat, and special situations all beat the broad market by a factor of three. The poorer performing global macro and systematic strategies also beat the stock market with lower correlation. Interestingly, the best performers like systematic macro in the first quarter have moved lower in the last two months. The bond market and gyration in the currencies have both led to lower returns for macro managers.

We also compared returns versus three year volatility numbers. The trend line shows the return to risk trade-off plus and minus one standard deviation away from the regression. Systematic managers had more risk and lower returns YTD. Overall, global macro was lower than average as marked by the green triangle.The confusion in macro markets have hurt these managers over the last two months.