Hedge Funds Navigate Mixed Fortunes in May: Stocks Soar, Bonds Stumble

Hedge funds experienced a mixed May, with strong stock market performance boosting returns, while challenges in bond markets and commodities posed significant hurdles. A weaker dollar and successful exploitation of market dislocations following April's global trade shock contributed to overall gains, despite volatility in fixed income.

May's Market Dynamics

May saw a rebound in stock markets as concerns over tariffs eased, providing a favorable environment for equity-focused hedge funds. Conversely, bond markets faced a sell-off, driven by renewed worries about high debt levels in major economies like the United States and Japan. This divergence created both opportunities and obstacles for fund managers.

Key Takeaways

• Global hedge funds achieved a 3% monthly return by May 29, contributing to a 5% year-to-date return.
• Stock-picking hedge funds led with a 3% performance in May.
• Multi-strategy hedge funds returned 2.5%.
• Quantitative equity funds, utilizing systematic strategies, saw a 4.2% return.
• Bond market volatility and commodity whipsaws presented challenges, offsetting some gains.

Performance Across Strategies

Several prominent hedge funds demonstrated varied performance in May:

• Arrowpoint Investment Partners: This Singapore-based multi-strategy fund, managing $1.1 billion, capitalized on market disruptions caused by tariff shocks, identifying new arbitrage opportunities.
• AQR Capital Management: Billionaire investor Cliff Asness's $135 billion fund saw gains from stock selection and corporate arbitrage within its Apex Strategy, which delivered a 2.4% return net of fees. However, AQR's Helix Strategy, a trend-following program, remained flat in May, as positive stock returns were negated by reversals in interest rate derivatives and bond tenor trades.
• Man Group: London-listed Man Group's AHL Alpha fund recorded a negative 2.19% return for May, bringing its year-to-date performance to approximately -11%. In contrast, its multi-strategy fund had a positive May, achieving around a 5% return for the year so far.

Systematic funds, particularly those with strict volatility limits, faced difficulties in recent months, sometimes being forced to exit trades prematurely due to market uncertainty, as noted by portfolio managers at Man Group's AHL strategy.

Sources

• Hedge funds lifted by stocks, stymied by bonds in May, say sources, Reuters.