Hedge funds are having a much better year in 2023 than many did last year, although the size of returns varies significantly based on who’s doing the measuring. For example, hedge funds administered by Citco generated an overall weighted-average return of 2.77% for the second quarter, bringing their year-to-date return to 8.04%.
However, the PivotalPath Composite Index is up only 3.5% year to date after a June return of 1.6%. Equity hedge funds have been leading the way in both hedge fund indices this year, although larger funds have dominated Citco’s returns while PivotalPath reported mixed returns based on size.
Meanwhile, hedge funds administered by Citco generated median returns of 1.98% for the second quarter and 3.94% year to date. Over 70% of the funds administered by Citco have generated positive returns year to date, while 67% of the funds tracked by PivotalPath are in the green year to date.
Equities and multi-strategy funds lead the way
The second quarter was another one of robust returns for equities and multi-strategy funds administered by Citco, which generated weighted-average returns of 4.52% and 2.54%, respectively. Year to date, equities funds are up 10.34%, while multi-strategy funds have gained 10.14%. Fixed-income arbitrage funds are also in the green year to date, with an overall weighted-average return of 5.27%.
On the other hand, the headwinds continued for commodities and global macro funds, which generated weighted-average losses of 2.02% and 2.15%, respectively. Year to date, commodities funds are down 4.3%, while global macro funds declined 4.08%.
Citco noted that commodities and global macro were two of the best-performing strategies last year despite this year’s difficulties. However, the firm also believes this year’s headwinds could shift in the second half of this year.
According to Citco, event-driven funds were one of the top-performing strategies during the first quarter, but they reversed course during the second, generating weighted-average losses of 3.81%. However, the strategy remained in the green year to date, up 0.92%.
All but one strategy in the green
Meanwhile, PivotalPath reported that every hedge fund strategy it tracks was in the green for June, bringing all strategies except global macro into the positive year to date. Even global macro is only marginally negative year to date, down 0.1%.
In June, the best-performing strategy among funds was equity quant, with a return of 3%, followed by event-driven and equity diversified at 2.3% each and managed futures at 2.2%. The worst-performing strategy in June was multi-strategy at 0.6%, followed by equity sector at 0.7%.
However, equity sector is the best-performing strategy for PivotalPath year to date at 7.4%, followed by equity diversified at 5.5% and credit at 3.8%. Aside from global macro’s slight negative return, the other worst-performing strategies year to date are managed futures at 1% and multi-strategy and equity quant, each with 1.8%.
Divergences in Citco-administered funds by strategy and size
Larger funds administered by Citco generally have outperformed smaller ones this year. However, the firm noted a divergence in strategy and assets under administration, both in the second quarter and year to date.
For example, multi-strategy funds generated a median return of 1.1% for the second quarter and 1.96% year to date, versus the weighted-average returns of 2.54% and 10.14%. This indicates significant outperformance by larger multi-strategy funds versus smaller ones.
On the other hand, global macro funds have generated median returns of 0.38% for the second quarter and 0.03% year to date, versus the weighted-average returns of -2.15% for the quarter and -4.98% year to date. This indicates that larger global macro funds have performed significantly worse than smaller ones this year.
Overall, Citco-administered funds with $1 billion to $3 billion in assets under administration were the top performers during the second quarter, with a weighted-average return of 3.3% and a median return of 3.42%. Funds with $200 million to $500 million were in second place with a weighted-average return of 3.08% and a median return of 2.59%.
The worst-performing size group among Citco funds during the second quarter was those with less than $200 million, which generated a weighted-average return of 0.55% and a median return of 1.3%.
Mixed returns by size for PivotalPath
Although Citco-administered funds were generally dominated by larger-sized funds, PivotalPath’s returns are more varied. However, similarly, funds with $1 billion to $2.5 billion are the best performers year to date at 5.3%, followed by funds with over $5 billion at 4.92% and funds with less than $100 million at 4.7%.
The worst-performing size group among funds tracked by PivotalPath is those with $2.5 billion to $5 billion, which are now up 2.4% year to date following June’s 2.38% return.
Redemptions rose in Q2
Citco also reported increased redemptions during the second quarter after a spike in June, which is typical during the last month of a quarter. Overall, the hedge funds administered by Citco reported $7 billion in net outflows during the second quarter, with equities accounting for $6.5 billion of those outflows.
Despite or probably because of their outperformance, equities funds recorded the majority of the outflows, prompting investors to lock in those gains and rebalance their exposures. However, hybrid funds continued to see positive flows, capturing $2 billion in net inflows during the second quarter to add to the $1.4 billion they captured during the first quarter.