Hedge Funds, with Tepid Start to 2018, Get Bump in May

Their 0.65% increase last month makes up more than two-thirds of this year’s increase.

After a so-so start to 2018, hedge funds began to pick up in May, bringing the industry to a 0.84% gain for the year through last month, according to Evestment research. That compares to a 2.02% increase for the all-stock S&P 500.

In May, though, hedge funds climbed 0.65%, accounting for more than two-thirds of the industry’s advance.

During 2017, the US stock market was roaring and so were most other nations’ markets. So for the first months of last year, hedge funds in general were up 3.2%. They finished 2017 at 8.93%.

Markets, both for stocks and bonds, have been iffy in the beginning of 2018. The S&P 500, after suffering a 10% correction this winter, has recovered somewhat and now is ahead 3.64% for the year. Bonds, which face challenges from rising interest rates and inflation, are in the red, down 2.36% in 2018, as measured by the Bloomberg Barclays US Aggregate bond index.

The tepid recovery of stocks boosted the performance of long-short hedge funds, which focus on equities. After losses in March and April, marking the category’s first consecutive monthly decline since January and February 2016, long-short rose 2.05% in May. That makes the long-short strategy the leader thus far this year, ahead by 2.22%.

The biggest loser for the current year is the managed futures segment, down 2.79% through May. At the heart of this strategy are commodities and currencies, which have had a wild ride in 2018. Managed futures hedge funds seek to profit by finding mispricing or from going long or short, according to their trading programs. And while commodities have rebounded somewhat this spring, managed futures have not. With hedge funds dedicated to managed futures sliding 2.79% in 2018 overall, just one-third have been in the black this year.

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