BNP Paribas's prime services put out a report on April 2025 hedge fund activities which looked at how funds did amid shift in US trade policies, major market volatility and the impact of tariffs.
Hedge funds on average underperformed in April by -0.31%, bringing their YTD performance to 0.73%. The MSCI World Index fared well in April with a 0.93% performance, equaling their YTD performance of -0.73%.
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The Bloomberg GlobalAgg index was up in April by 2.94%, bringing their YTD performance to 5.65%. Regarding the BB Global EQ:FI 60:40 index, it was positive in April (1.70%), which equals their YTD performance of 1.73%.
When looking at the strategy level, the situation stands as follows:
- From the quantitative group of funds, the best performers came from statistical arbitrage (7.79% YTD), followed by quant equity directional (5.85% YTD). CTA funds ranked at the bottom with a YTD of -6.18%. Quant macro funds are also in the red (-0.46% YTD).
- Top performers from the discretionary bucket of strategies are convertible trading funds (3.04% YTD), followed by macro (2.53% YTD) and event-driven (2.29% YTD). Top underperformers were volatility trading funds (-0.46%). Also, equity long/short funds are struggling with -0.09% YTD gains.
If looking at performance through the lens of regional equity, top performers are funds invested in Europe (1.81% YTD and 0.51% in April), while globally hedge funds were in the red (-0.28 YTD and 0.31% in April). Hedge funds operating from the Americas are currently responsible for the majority of underperformance; however, April figures are encouraging (-0.58% YTD and 0.25% in April).
Regional credit strategies on a global level are having a positive 2025 year (1.01%), but April returns may turn the tide (-0.46%).
Market Commentary
The top story for April was post-“liberation day” developments. Unclear methodology on the implementation of measures, including tariffs, left investors baffled with the expectations of backed measures, which could allow taking a specific stance.
Implementation of tariffs caused the largest S&P 500 drop in just three days since 1987 (600 base points on April 2nd). President Trump explained this as a short-term struggle that investors will have to endure, which would bring long-term benefits.
However, investors were not impressed, and more and more analysts are announcing a recession in 2025. Treasury yields are rising as investors align their views with analysts' predictions.
The administration in the development of events postponed the implementation of tariffs by 90 days (excluding China). The administration, in the wake of a large deficit-increasing fiscal package, is becoming aware that the weakness of treasury markets is not something they want at the moment.
Different answers to tariffs came from countries, which were almost all in a way impacted. Some countries tried to renegotiate with the US, which would ease the impact of the measures, while China imposed their tariff response. The US responded to China's tariffs with a new surge in rates, which reached 145%.
Recently we witnessed a shift, and the US temporarily dropped tariffs from 145% to 30%. China in return will cut their tariff rates from 120% to 10%. These new rates are limited to 90 days, which will for sure bring additional uncertainty to the market.
The Federal Open Market Committee has a difficult task to keep everything in order since the full impact and scale of tariffs remain to be seen. No clear signs about future rate cuts, which would boost the economy in the case of a recession, were announced.
From the BNP perspective, the FED will most likely keep the rates at the same levels in 2025. They will still wait for economic growth, inflation, the labour market, and long-term inflationary expectations to unravel. Also, changing the rates while the future US trade policies are still uncertain is doubtful.
For now the labour market is responding well, but the impact of tariffs is seen on inflation and on long-term inflationary expectations.
The European Central Bank dropped rates by another 25 basis points, taking little regard for tariffs. The Bank of Japan and the Bank of England are not changing their strategies, while in China new stimulus packages are in the works.
Trump's tariffs pointed toward Canada, coupled with threats of invasion, resulted in governmental change. The new prime minister is Mark Carney from the Liberal Party, which promised a more business-friendly and econometrics-driven approach to governance. However, this shift did not impact the tariffs that the US government pushed on its neighbour. The scenario in which the tensions would ease would be accepting the annexation by the US.
Argentina managed to get a new deal with the IMF for a $20 billion bailout, which can prove to be a lifeline for President Milei in his attempt to overhaul the economy.
The overall global economic outlook is shadowed by uncertainty. Expansionist Israel and the US with threats of using lethal force against their allies, and the newest clashes between India and Pakistan, are just some of the events that are causing further shocks in the economy and trade.
