Analysis-Trend hedge funds struggle as more nimble macro funds embrace whipsawing markets

Hedge fund performance is sharply divided this year, with systematic, trend-following funds down over 11% through May due to whipsawing markets influenced by events like Trump's tariff announcements; firms such as Systematica, Transtrend and Aspect Capital are down approximately 15-18%. Conversely, discretionary macro hedge funds are up nearly 7%, with Rokos Capital Management up 9.5% and EDL Capital up 24%, as these funds have been able to adapt more nimbly to market volatility, though some firms with both types of strategies have seen mixed results.

Analysis

Hedge fund performance year-to-date through May reveals a significant divergence driven by market volatility, particularly influenced by U.S. President Donald Trump's unpredictable policy decisions. Systematic hedge funds, relying on algorithms to follow market trends, have notably underperformed, declining over 11% according to Societe Generale. Specific examples include Systematica (down c. 18.5%), Transtrend (down c. 16.3%), and Aspect Capital (down c. 15%). These funds were reportedly 'whipsawed' as market moves frequently reversed before trends could be established, exemplified by European stocks gaining 10% by February-end before falling 20% from March 25. Detrimental positions for trend funds included U.S. Treasuries, the Australian dollar, Japanese government bonds, and, in May, coffee. In contrast, discretionary macro hedge funds, which allow for more flexible decision-making on trade timing and asset classes, were up almost 7% by end-May, per PivotalPath data. Rokos Capital Management, for instance, returned 9.5%, and EDL Capital achieved a 24% gain. While this dispersion narrowed post-April, historical data since 1998 shows macro traders averaging 8.5% annually (discretionary macro 9.6% since 2001) versus 7.2% for managed futures. Some firms deploying both strategies have seen mixed results: Man Group’s systematic AHL Alpha Programme was down 10.6%, while its multi-strategy fund rose 5.4%. Similarly, Graham Capital Management’s Multi-Alpha Opportunity fund gained almost 9%, offsetting an 8.7% fall in its Tactical Trend fund. AQR Capital Management's multi-strategy Apex fund returned 10.6%, and its Helix alternative trend strategy was up 7%, despite being flat in May due to interest rate swap and yield curve reversals. Ken Tropin of Graham Capital Management cautioned against overreacting to violent trend reversals, advocating adherence to historically successful models.

Key Decisions for Investors

• Investors should critically assess their allocation to systematic versus discretionary hedge fund strategies, considering the current environment where nimble, discretionary approaches have demonstrated superior performance.
• Given the whipsawing market conditions and policy unpredictability, strategies that can quickly adapt and make tactical shifts across asset classes may be better positioned than purely algorithmic trend-following funds, which have struggled to capture consistent trends.
• Monitor the performance of diversified multi-strategy funds, as these may provide a buffer against volatility by combining different approaches, such as Man Group's and Graham Capital's examples suggest.
• Exercise caution with pure trend-following strategies in the near term, as their traditional defensive characteristics may be compromised if sharp market reversals persist, and consider the advice to avoid overreacting to model underperformance during such periods.