Varied returns among largest managers highlights hedge fund performance

Hedge funds gained an average of +2.07% in June bringing YTD average returns to -3.37%. Roughly 40% of the industry is producing positive results in 2020, with the average gain +9.12% while the average decline is -10.85%.

The ten largest reporting funds’ average return in June was significantly below the industry average for the month (-0.70% vs. +2.07%), and YTD returns for the group also lag the broad industry (-5.75% vs. -3.37%). From these largest managers, there is a wide dispersion of returns. Seven are down an average of -14.03% for the year, while the three that are positive are each up over 6%, with two producing noticeably outsized gains. Given the size of these products, a broad swath of investors are likely feeling dissatisfied with their hedge fund allocations this year.

Funds focused on corporate capital structures performed best in June, and have outperformed the broad equity or fixed income segments YTD. Funds focused on FX/currency markets have produced the best average market-focused (as opposed to strategy) returns in 2020.

Managed futures was the sole strategy segment to produce aggregate losses in June. Though negative for the year, the strategy is generally doing better than the industry and better than most other primary strategy segments. Within the group, it would appear the largest managers are underperforming their peers, but in reality it is a mixed bag with half producing gains and half producing losses. The average loss from the five, however, is nearly 2x larger than the average industry loss in 2020.

Macro managers are seeing a similar YTD story as managed futures funds, except with even wider dispersions of returns being produced among the ten largest.

On a regional/emerging markets basis, China-focused funds have produced average gains that are the best of any segment within the industry in 2020, while Brazil-focused funds are at the other end of the spectrum (+8.34% vs. -24.12%).

Within sub-sector exposures, insurance-linked produced appear to have fared well, thus far at least, +0.74% in June and +0.20% in 2020, while those focused on mortgage-related securities are -9.16% YTD.