Hedge funds generally posted positive returns in July after several negative months. Commodities were the only strategy that struggled as prices of many commodities fell after months of skyrocketing prices.
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Hedge funds largely in the green
On average, hedge funds managed by Citco returned 3% in July, -2.4% in June and a weighted average return of -1.1% in May after recouping some of their year-over-year losses. At 1.1%, the median return showed a wide spread. About 70% of funds managed by Citco had a positive return in July, while only 28.5% of funds had a positive return in June.
While commodity hedge funds were the top performers earlier this year, the strategy was the only one in the red in July, with a weighted average return of -0.7%. On the other hand, multi-strategy funds led the way with a weighted average return of 4.4% in July. Equities came in second at 3%, followed by fixed income arbitrage at 1.8%.
On average, commodity hedge funds were flat, while the best-performing strategy on a multi-strategy weighted-average basis had the second-worst average return of 0.2%. The strategy with the best average return was equities at 3.4%, followed by fixed income arbitrage at 2.3%.
Fund returns by size
The largest hedge fund managed by Citco outperformed its smaller peers with a weighted average return of 4.3% for a fund with more than $3 billion in assets under management. Second in the size bracket was funds between $200 million and $500 million, trailing far behind the first place with a return of 2.3%.
However, the rest of the size categories had similar returns, 1.7% for funds under $200 million under management and 1.9% for funds under $1 billion to $3 billion under management. On average, the $200 million to $500 million size class produced the strongest return at 1.9%, which wasn’t much below the weighted average return.
Funds with more than $3 billion in assets produced an average return of 1.6%, a huge difference from their weighted average return, showing the widest spread of returns among funds of this size. Overall, the outperformance of larger funds relative to smaller funds was also reflected in a weighted average total return of 3% and a wider spread between average returns of 1.1%.
Inflows and outflows were low in July
Funds managed by Citco saw only modest net inflows in July, a reversal from June.
Those with $1 billion to $5 billion under management saw the highest net inflows at $2.7 billion, followed by those with less than $1 billion, which saw a net inflow of $200 million. On the other hand, funds over $10 billion saw a net outflow of $1.6 billion, while those between $5 billion and $10 billion saw outflows of $100 million.
Small net inflows or outflows were observed for all strategies. The strategies with the most inflows were hybrid and global macro strategies, each generating $700 million in inflows. Stocks saw the highest net redemption at $700 million.
US regionally focused funds saw inflows of $2.1 billion, while Asia and Europe funds reported net redemptions of $500 million and $400 million, respectively.
Looking ahead, Citco forecasts net redemptions of $13.5 billion for the end of the third quarter and $8.2 billion for the dates beginning in the third quarter.
Busy July for business activities
In general, July and August are quiet months in terms of capital activity, but the previous month was another busy business cycle. Although July was busy, the company said volumes were slightly lower than previous months.
Last month, the company saw its highest average daily trading volume on record, up 2% month-on-month. Total volume in July increased by 38% compared to July 2021, indicating a significant deviation from the norm.
Volatility continued to decline throughout the month, reaching its low on the previous trading day. Citco has seen a steady increase in trading activity while volatility has decreased.
The company said growing interest in digital assets from a small number of managers further fueled increased activity in July. Most managers saw higher volume in equities, currency cross rate and interest rate futures. Stock options were up 58 percent and index options were up 77 percent.
The company has seen steady growth in treasury volume year-over-year.
Michelle Jones contributed to this report.