There are surprising performance dynamics arising for hedge fund strategies in 2019. A positive expected return for equity focused hedge funds is expected when there is a high market return year. While the returns may not match market portfolio given the low beta for many hedge funds, the combination of alpha with some market exposure should generate good performance. We have seen these expected equity hedge gains with the HFR index fund averages.
The strong showings for global macro and CTA managers this year have been surprising. Global macro and CTA managers have received a lot of bad press the last few years given their lackluster returns, yet 2019 index averages through July have shown good positive gains. However, the HFR indices do not do justice to the strong performance for some managers and strategies. While there has been significant dispersion in returns, some managers have shown their best returns in years. This recent performance has been independent of any “crisis alpha” story, albeit the threat of a global recession has risen significantly over the last year. With some extended trends especially in global fixed income, global macro has been able to provide gains through a different return stream.
Diversified stock/bond portfolios have also done well during this period, so the true strategy test will come as we move into the last four months of year. If there is an equity decline that causes long market beta positions to flip negative, the dynamic global macro strategies will be all the more successful. If this market change is gradual, average systematic macro/CTA managers will close the year with of their best recent returns
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