The Eurekahedge Eastern Europe & Russia Hedge Fund Index was up 2.72% as of April 2022 year-to-date, outperforming the S&P 500 by 16.02% over the same period. Macro hedge fund managers with exposure to commodities and interest rates were the performance drivers of the mandate during the year. In 2021, macro fund managers reported 4.07% return on average, lagging against their strategic peers as they tend to underperform during periods of strong market performance. Market volatility returned in 2022 driven by higher inflation rates which have compelled central banks particularly the Fed to tighten monetary policy aggressively, a geopolitical conflict between Ukraine and Russia, and COVID-19 induced lockdowns in China. As quoted by the famous economic theorem of ‘No free lunch’, the effect of massive economic stimulus and accommodative monetary policies by the authorities to support their economies from the crisis and spur demand were seen in a rapid increase in consumer prices. Supply chain disruptions also contributed to the elevated consumer prices, which were exacerbated by the ongoing geopolitical conflict in Eastern Europe and lockdowns in China. Global inflation rates stood at 9.2% in March 2022, while the US printed 8.5% over the same period, which is the highest over the last four decades in the region. In a bid to combat higher inflation, the Fed hiked its rates in March and May for a total of 75bps and is expected to raise its rates by four to six times for the rest of the year. Fed tightening is expected to cause a global recession causing concern among investors and resulting in a sharp decline in risk assets in April. The tech-heavy NASDAQ and S&P 500 were down -13.26% and -8.80% in April respectively, bringing their year-to-date return to -21.16% and -13.31% respectively.
Figure 1: Performance of global macro hedge funds vs other investment vehicles since end-2009
Figure 1 shows the performance of global macro hedge funds against other investment vehicles since 2009. Global macro hedge funds as represented by the Eurekahedge Macro Hedge Fund Index generated 4.87% of return per annum, slightly underperforming their CTA/managed futures peers as represented by the Eurekahedge CTA/Managed Futures Hedge Fund Index who posted an annualised return of 4.97%. In comparison, global government bonds generated 1.34% of return per annum, while the S&P 500 reported a much higher annualised return of 11.20%.
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