HFRI writes that hedge funds extended strong 1H gains to begin the second half of the year, with leadership accelerating from directional Event Driven and Equity Hedge, which was driven by an improving outlook for M&A, trade negotiations, and overall economic outlook into 2H25.
The HFRI Fund Weighted Composite Index (FWC) advanced an estimated +0.8 per cent in July, while the HFRI Asset Weighted Composite Index added +0.6 per cent for the month, as reported today by HFR, the established global leader in the indexation, analysis and research of the global hedge fund industry.
Driven by strong earnings and a continued decline in implied volatility, the HFRI Event-Driven (Total) Index led strategy gains, jumping an estimated +1.5 per cent for the month, while the HFRI Equity Hedge (Total) Index advanced +1.2 per cent.
The HFR Cryptocurrency Index surged +14.5 per cent in July, while the HFRI Multi-Manager/Pod Shop Index added +0.1 per cent, with positive contributions from equity, event-driven, and fixed income exposures.
Hedge fund performance dispersion contracted in July, as the top decile of the HFRI FWC constituents advanced by an average of +6.7 per cent, while the bottom decile fell by an average of -4.6 per cent, representing a top/bottom dispersion of 11.3 per cent for the month, the firm writes.
By comparison, the top/bottom performance dispersion in June was 12.3 per cent. In the trailing 12 months ending July 2025, the top decile of FWC constituents gained +38.1 per cent, while the bottom decile declined -20.4 per cent, representing a top/bottom dispersion of 58.5 per cent. Approximately 70 per cent of hedge funds produced positive performance in July.
Event-Driven (ED) strategies, which often focus on out-of-favour, deep value equity exposures and speculation on M&A situations, led strategy performance in July, as the HFRI Event-Driven (Total) Index jumped an estimated +1.5 per cent for the month, resulting in a three-month surge of +6.6 per cent since mid-2Q. ED sub-strategy performance was led by the HFRI ED: Activist Index, which jumped +4.0 per cent, and the HFRI ED: Multi-Strategy Index, which returned +1.8 per cent for the month.
Equity Hedge (EH) funds, which invest long and short across specialised sub-strategies, advanced on gains in Healthcare, Fundamental Growth, Market Neutral, and Technology strategies. The HFRI Equity Hedge (Total) Index returned an estimated +1.2 per cent for the month, led by the HFRI EH: Healthcare Index, which surged +4.8 per cent, the HFRI EH: Fundamental Growth, which jumped +1.3 per cent, the HFRI EH: Equity Market Neutral Index, which advanced +1.0 per cent, and the HFRI EH: Sector-Technology Index, which added +0.50 per cent. Through the first seven months of the year, the HFRI EH (Total) Index leads all strategy performance with a gain of +7.25 per cent.
Fixed income-based, interest rate-sensitive strategies also advanced for the month despite bond yields rising and the US Federal Reserve holding interest rates steady, with the HFRI Relative Value (Total) Index advancing an estimated +0.8 per cent in July. Relative Value performance was driven by the HFRI RV: Convertible Arbitrage Index, which gained +1.85 per cent for the month, and the HFRI RV: Corporate Index, which added +1.2 per cent.
Uncorrelated Macro strategies generated mixed performance in July, with the HFRI Macro (Total) Index posting an estimated narrow decline of -0.1 per cent for the month. The HFRI Macro: Systematic Diversified Index advanced +0.3 per cent for the month, while the HFRI Macro: Multi-Strategy Index fell -1.2 per cent.
Liquid Alternative UCITS strategies advanced in July, as the HFRX Market Directional Index gained +1.3 per cent, while the HFRX Global Hedge Fund Index added +0.6 per cent for the month. HFRX strategy performance was led by the HFRX Equity Hedge Index, which gained +0.8 per cent in July.
“Hedge funds posted a strong start to the second half of the year, accelerating the powerful performance trend of the second quarter and building on strong institutional demand and asset growth in the first half. July gains were extended across nearly all strategies – crypto, event driven, equities, activist, fixed income, and multi-strategy/pod shops – with these benefiting from increased near-term clarity on trade/tariff negotiations, expectations for interest rate reductions, and an improved global economic outlook for the second half of the year,” says Kenneth J. Heinz, President of HFR. “With equity markets at record highs, while risk-on sentiment has dominated the past two and a half months supporting gains across both hedge funds and long biased benchmarks, significant risks remain with the potential for reversals and volatility as geopolitical policy changes are factored into global financial markets. Forward looking institutional investors are likely to accelerate the capital growth trend from the first half of the year by allocating to strategies opportunistically positioned to participate in additional market gains whilst at the same time retaining the tactical flexibility to quickly react to dynamic and unpredictable changes which are likely to occur in the current financial market paradigm.”
