The hedge fund sector was able to chalk up gains in the first half of this year, although looking ahead, a mixed environment – geopolitics, supply chain limits and rate uncertainties – jostles for influence along with AI gains and earnings.

Hedge funds gained in June, posting their third consecutive monthly advance, driven by record equity levels, rising investor optimism, falling energy prices and hedge fund exposure to the record IPO of Space X, figures from Hedge Fund Research showed this week. 

The HFRI Fund Weighted Composite Index® (FWC) showed a return of 0.4 per cent in June, led by the equity hedge and event driven strategies. Since the start of January, the index has shown returns of 7.57 per cent. In the second quarter, the return of 6.55 per cent was the strongest quarter for hedge funds since the final three months of 2020.

“Hedge funds advanced for the month as equity markets eclipsed new records driven by AI gains, and positive exposure to the record Space X IPO, although managers were forced to navigate increasing risk off sentiment throughout the month driven by concerns about valuation and the sustainability of AI spending,” Kenneth J Heinz, president of HFR, said. 

“While these powerful dynamics led industry gains in 1H [26], the macroeconomic outlook for 2H [26] presents a mixed picture, with tension between the continuation of these same drivers juxtaposed with an evolving risk profile concerning AI spending, geopolitical risk, global supply chain constraints, uncertainty as to the near-term path of interest rates and the impact of shifting political sentiment in upcoming elections,” he said.