Although macro strategies funds were the top performing strategies in Q2 2014, a new report from Preqin points out that it’s too early to signal a recovery in the macro strategies sector.

In Preqin’s Hedge Fund Spotlight report for August 2014, Bianca Foux notes the net return of 1.04% in May was the first time macro funds gained over 1% in a single month since January 2013.

One-third macro funds posted over 5% gain

According to the Preqin report, macro funds posted a return of 1.91% in the first half of 2014, leaving them nearly one percentage point higher than the midway point last year. Managers will be cheered by the returns of the last few months following a near-neutral first quarter. As can be seen from the following graph, the distribution of returns is encouraging, with one-third of macro funds gaining 5% or more in the first six months as compared to just 26% in the first half of 2013:

Macro funds strong performance-in-H12014

Taking a closer look at the performance among macro strategies, the report highlights that fixed income funds have outperformed other focused macro strategies in recent years and led the way in 2014, having delivered 4.26% through June. This trend is captured in the following graph:

Performance of macro sub-strategies

Fund of hedge funds prefer macro funds

The Preqin report notes a broad interest in the strategy among investors, with over 41% of investors including macro strategies as one of their preferred hedge fund strategies. However, the report points out that a significant proportion of institutional investors are holding off on making any investments in the space at the moment.

According to Foux, there is a marked difference between each group’s current outlook on the macro strategy. As set forth in the following graph, fund of hedge funds managers make up 27% of investors with a preference for macro funds, though this group also represents 54% of investors that are targeting macro funds in the next 12 months:

Preference among investors

By considering the location of investors, the report highlights that more investors in Europe are looking for macro strategies in the next 12 months than in any other region, with 49% of the institutions seeking macro funds based in the region. This trend is captured in the following graph:

Macro funds-Investors' location

Foux concludes that despite some signs of improvement in the macro strategies sector, it’s too early to call it a recovery. However, she believes the strategy remains attractive for a variety of characteristics including greater liquidity, lower volatility and lower correlation to equity markets. The report notes as long as these characteristics persist, the macro strategy will retain its appeal among investors looking to manage portfolio risk and guard against a sudden decline in equity markets.