UBS Report: Hedge Funds Rise 1.2% in July, Underperform Equities and Bonds
In a recent report, UBS highlighted that hedge funds saw a moderate performance in July, with a 1.2% increase for the month and a 6.4% year-to-date rise. Despite this growth, hedge funds fell short compared to equities and bonds, mainly due to challenges in macro and relative value strategies.
However, directional strategies continued to lead in performance, with positive alpha across most strategies. This was attributed to lower volatility compared to equities and bonds. July witnessed choppy market conditions, with a 5% drawdown in equities caused by concerns over AI stock bubbles. A rebound occurred on the last trading day due to the Federal Reserve hinting at rate cuts.
Although hedge funds underperformed, certain strategies like directional equity and event-driven approaches showed strength. Managers adopted a cautious stance by de-risking and reducing beta exposure. Managers aligned with global equities in equity long/short strategies, but alpha generation proved challenging.
Fundamental value and multi-strategy outperformed, while technology-oriented managers faced losses. Event-driven strategies excelled in July, thanks to gains from activist managers and robust corporate market activity. Macro strategies had mixed results, with systematic macro managers struggling.
Relative value strategies provided stable returns, with credit strategies leading the way. UBS remains bullish on the hedge fund opportunity set, citing a conducive environment for stock-picking and potential boosts in merger and IPO volumes.
In conclusion, hedge funds showed moderate growth in July but faced challenges compared to equities and bonds. Various strategies performed differently, with event-driven approaches standing out. The report highlights the importance of a cautious approach in volatile markets and the potential for future growth in the hedge fund sector.