Financial markets were battered by extreme volatility in January, but macro hedge funds posted solid and negatively correlated gains in a choppy environment, according to a report from Hedge Fund Research.

“In 2021 and 2020, higher beta strategies were the best performing strategies; risk has dominated during this period,” said Kenneth Heinz, president of HFR. Institutional investor. “January was the opposite of that – stocks were down, fixed income was down and commodities were up.” Heinz said that compared to most investment methodologies, macro strategies typically produce the lowest returns, but their relatively low correlation to short-term market movements can make them the perfect antidote to a market environment. difficult and volatile like January’s.

The HFR macro index gained 0.85% in January and the HFRI 500 macro index rose 1.35%. Each of the sub-strategies that fall under the macro – commodities, discretionary and quantitative – returned positive results this month, an event Heinz called “interesting.” He said that when macro strategies have a strong month, it’s typical for one sub-strategy to perform positively while another experiences a downturn, but it’s relatively rare for each of the sub-strategies to be in the green. .

“I think it really comes down to being positioned for inflation, for higher interest rates with bond commodities, [with] short term or short term fixed income securities, and [with] short equity exposure with a long volatility bias,” Heinz said.

An example of such good positioning is Haidar Capital Management, a New York-based hedge fund manager which had its best month ever in January, rising 30.65%, while II Previously reported. Haidar’s portfolio was mostly comprised of commodity and fixed-income positions, which helped protect him from the big tech sell-off.

Jonathan Caplis, managing director of PivotalPath, a hedge fund research organization, agreed, saying macro funds were generally well positioned for the month of January. PivotalPath’s macro index returned 2.6% last month, and the commodities, discretionary and risk premia sub-strategies held the top three positions. “The dispersion, however, was the highest since March 2020, and the average return for these strategies was positively skewed by some outsized returns from a relatively small subset of funds,” Caplis said. II in an email.

Caplis also said that while strategies such as macro and managed futures, which have low betas on average and are negatively correlated to stock markets, perform well during sell-offs in traditional asset classes, this does not that’s not necessarily what created the favorable conditions for them. “Continued trends in fixed income and commodities have created an ‘optimal environment,'” he said.

The past month has not been so strong for fixed income strategies: the HFRI Relative Value Index recorded a slight gain of 0.1% last month, and the HFR Relative Value Index 500 saw a decline of 0.2%. In terms of sub-strategy performance, fixed income securities were mixed. HFR’s Yield Alternatives Index, which Heinz says acts as a “catch-all for private niches” like MLPs and real estate, gained 1.3%. The fixed income index gained 0.6%. Meanwhile, the HFR’s fixed income and convertible arbitrage index fell 0.14% in January, while its volatility index fell 0.93%.

Rajay Bagaria, president and chief investment officer at Wasserstein Debt Opportunities, said if interest rates rise, he anticipates a recession and a sell-off in equity and credit markets. “Now is a great time to really consider seriously reducing risk,” Bagaria said. II.

Bagaria said institutional investors may be able to insulate themselves from an increasingly volatile macroeconomic environment by limiting exposure to yield curve-sensitive high-yield products, such as high-yield ETFs, and entering the leveraged loan market. “Leverage loans have a variable interest rate, so the higher the rates go, the more they pay. It’s a very defensive asset class in this market,” Bagaria said. safety in all fixed income securities, not just high yield.”