How Currency Swings Are Shaping Hedge Fund Returns
Hedge fund performance has shifted noticeably as major currencies have seesawed. In August in particular, trend-following funds struggled, with pressure tied to exposures in the New Zealand dollar and Japanese assets.
August’s Volatility and How Funds Positioned
August was a whipsaw month for global markets, and that made positioning hard to manage. Societe Generale’s analysis shows many funds ended the month still holding long positions across several areas: Japanese government bonds, U.S. equities, and the Australian and New Zealand dollars among them.
Asset Classes Under Pressure
Even with those positions, some of the assets favored by trend-following strategies posted sizable losses this year. Whether those losses came from bullish or bearish stances isn’t fully clear from the high-level data, but the pattern is hard to miss: the trend worked—until it didn’t.
Insights on Poor Performers
Two weak spots stood out: 10-year Japanese government bonds and the New Zealand dollar. European markets added to the strain as well, with Germany and Italy turning lower and compounding the drag on returns.
The Move Toward Shorter-Term Trades
While longer-horizon, trend-following approaches took a hit, shorter-term trading found more traction. Funds such as Revolution Capital Management and Altiq posted positive results in August, in the range of 3.8% to 4.5%. That spread hints at a tactical shift underway, as managers lean into faster adjustments when conditions change quickly.
Market Recovery Amid the Turbulence
There was a late-month counterpoint: world stocks rebounded to record highs toward the end of August. That bounce doesn’t erase earlier losses, but it does point to shifting sentiment—and to opportunities for strategies that can reset quickly.
The Longer View for Hedge Fund Strategies
Not every manager ended up behind for the year. Drury Capital Management and SEB Asset Management, for example, have remained positive year to date, with gains of 3.45% and 0.57%, respectively. The lesson many will take from August is straightforward: stay disciplined, but build in flexibility. In a market that changes on a dime, the ability to alter risk quickly can matter as much as picking the right theme.
Frequently Asked Questions
What was the main problem for hedge funds in August?
Sharp currency moves—especially in the New Zealand dollar and Japanese assets—worked against prevailing positions and translated into losses for many trend-following funds.
How did shorter-term trades compare with trend-following approaches?
Shorter-term trades did better. While trend-following strategies stumbled, managers focused on quicker holding periods reported gains, with some posting returns between 3.8% and 4.5% during August.
What does heightened volatility mean for hedge fund performance?
Volatility can knock strategies off course when markets switch direction quickly. Models that rely on steady trends can lag, and the delay in adjusting positions can turn small swings into larger drawdowns.
Which funds stayed positive for the year despite August’s swings?
Drury Capital Management and SEB Asset Management remained in the black year to date, with reported gains of 3.45% and 0.57%, respectively.
How might funds adapt to conditions like those in August?
Managers may mix time horizons—balancing longer-run themes with shorter-term trades—so they can trim risk faster, rotate exposures, and navigate sharp market turns more effectively.
