# Hedge Fund Strategy Returns Under Positive Interest Rates

> Fourteen hedge fund strategy indices over thirty years, split by interest-rate regime. How much of the return since 2022 comes from the level of rates and how much from the strategy itself. 17 pages, 6 direct sources.

Published: 2026-09-14
Publisher: BlackRidge (https://blckridge.com/)
Canonical: https://blckridge.com/research/hedge-fund-strategy-returns-2026/
PDF: https://blckridge.com/research/hedge-fund-strategy-returns-2026/BlackRidge-Hedge-Fund-Strategy-Returns-2026-EN.pdf

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# Hedge fund strategy returns under positive interest rates

US short-term interest rates were close to zero in 2009–2015 and again in 2020–2021. Since 2022 they have risen, peaking at 5.25–5.50% in 2023–2024 and standing at 3.50–4.00% in 2026. Fourteen strategy indices are examined over thirty years. For each one the report answers a single question: how much of the return since 2022 comes from the level of interest rates, and how much from the work of the strategy itself.

## Return per unit of risk has recovered unevenly

Across fourteen strategy indices the average return per unit of volatility fell from 2.01 in 1997–2007 to 0.55 in 2008–2014. It has since recovered to 1.46 in 2022–2026, above the 0.98 of 2015–2021. The recovery is not evenly distributed: it is concentrated in strategies that trade price discrepancies between related assets, and limited in long-biased equity and emerging-market strategies (0.76 to 0.83 and 0.62 to 0.66).

## Four sources of return that do not depend on manager judgement

The name of a strategy carries little information. The substantive question is which market event must occur before the position produces a return.

### Trend following

Buys assets whose price has risen and sells those whose price has fallen; position size is set by current market volatility. The distribution of results is asymmetric: rare large gains cover frequent small losses.

### Mean reversion

Assumes a stable reference level for a price or spread and takes positions against departures from it. The distribution is the inverse of trend following: frequent small gains and rare large losses.

### Statistical arbitrage

Ranks hundreds of securities on shared factors and takes positions in the part of the return those factors do not explain, holding market exposure near zero. The result is determined by dispersion within the group, not by index direction.

### Merger and event arbitrage

Buys shares of the target and shorts those of the acquirer, receiving the spread when the deal closes. The payoff structure resembles insurance: a regular premium against rare losses when deals fail.

## Four sources of return that depend on manager judgement

Funds carrying the same strategy label may hold portfolios with no material overlap. The only way to distinguish them is to decompose the realised return by source.

### Global macro

Takes positions in interest rates, currencies and commodities through liquid futures and options; decisions are made either by the manager or by a formal model. The source of return is the accuracy of the monetary policy forecast, and risk is usually concentrated in a few positions.

### Equity long/short

Holds long and short positions within a selected group of shares and deliberately manages the portfolio's overall exposure to the market. The result combines stock selection with that exposure multiplied by market direction.

### Event driven and distressed

Works with restructurings, spin-offs, discrepancies between the prices of a single company's shares and bonds, and bankruptcies, where the timetable is set by legal process rather than price movement.

### Multi-strategy

Runs several of the above strategies under a common set of risk limits and reallocates capital toward those that perform under current conditions. Offers the investor stability of outcome rather than a single source of return.

## Distribution of funds across strategies: equity strategies predominate

Funds reporting to each strategy index are counted. The measure is approximate but reflects the actual distribution of managers across strategies: more funds work with equities than with all arbitrage strategies combined [06] . This is a separate August 2026 snapshot covering a different index set from the return tables.

- Strategy
- Funds
- YTD Aug 2026
- Aug 2026
- Equity long bias
- 9.68%
- 1.65%
- Emerging markets
- 7.98%
- 2.56%
- Fund of funds
- 7.69%
- 1.23%
- Equity long/short
- 9.92%
- 1.28%
- Multi-strategy
- 7.46%
- 1.33%
- Balanced (stocks & bonds)
- 7.86%
- 1.61%
- Global macro
- 8.58%
- 3.34%
- Event driven
- 5.19%
- 0.67%
- Equity market neutral
- 3.03%
- -0.16%
- Merger arbitrage
- 2.78%
- 0.59%
- European equities
- 6.84%
- 1.97%
- Healthcare & biotechnology
- 13.28%
- 4.59%
- Technology sector
- 19.97%
- 5.23%
- Option strategies
- 8.45%
- 1.40%

## Return per unit of risk by period

Every index is split into four regimes: the pre-crisis decade, the post-crisis deleveraging, the low-rate period and the period of positive rates since 2022. Comparison across columns identifies which strategies depend on the regime [01] .

- Return / risk
- 1997-2007
- 2008-2014
- 2015-2021
- 2022-2026
- Months of data
- All strategies (composite)
- 1.92
- 0.44
- 0.91
- 0.98
- Equity market neutral
- 2.38
- 0.89
- 0.87
- 3.89
- Convertible arbitrage
- 2.37
- 0.65
- 1.21
- 2.08
- Fixed income arbitrage
- 2.22
- 0.55
- 1.77
- 2.33
- Merger arbitrage
- 2.77
- 1.19
- 1.24
- 1.92
- Equity long/short
- 1.73
- 0.64
- 0.95
- 1.74
- Equity long bias
- 1.23
- 0.34
- 0.76
- 0.83
- Global macro
- 1.82
- 0.65
- 0.84
- 1.55
- Event driven
- 1.95
- 0.67
- 0.78
- 0.79
- Multi-strategy
- 3.74
- 0.78
- 0.82
- 1.16
- Distressed securities
- 2.20
- 0.40
- 0.89
- 0.59
- Emerging markets
- 1.04
- -0.07
- 0.62
- 0.66
- Fund of funds
- 1.90
- -0.03
- 0.60
- 1.20
- Technology sector
- 0.92
- 0.58
- 1.52
- 0.72

## Summary characteristics of strategies, 1997–2026

Compound annual return, annualised volatility of monthly returns, the ratio of the two, the largest decline from an achieved maximum, and the share of positive months over 354 months (January 1997–June 2026) [01] .

- Percent a year
- Ratio
- Percent
- Strategy
- CAGR
- Volatility
- Return / risk
- Largest decline
- Positive months
- All strategies (composite)
- 7.99
- 7.00
- 1.14
- -24.1
- 68.4
- Equity market neutral
- 4.94
- 2.80
- 1.76
- -6.3
- 74.0
- Convertible arbitrage
- 7.01
- 5.54
- 1.26
- -31.5
- 75.1
- Fixed income arbitrage
- 5.59
- 4.31
- 1.30
- -29.1
- 80.5
- Merger arbitrage
- 6.63
- 3.75
- 1.77
- -8.4
- 79.1
- Equity long/short
- 8.51
- 6.64
- 1.28
- -14.2
- 67.2
- Equity long bias
- 9.40
- 11.22
- 0.84
- -34.4
- 64.7
- Global macro
- 7.19
- 5.57
- 1.29
- -8.1
- 62.7
- Event driven
- 8.01
- 7.02
- 1.14
- -19.6
- 68.9
- Multi-strategy
- 7.24
- 4.59
- 1.58
- -19.3
- 74.0
- Distressed securities
- 7.16
- 6.69
- 1.07
- -35.3
- 69.8
- Emerging markets
- 7.80
- 12.88
- 0.61
- -42.5
- 64.1
- Fund of funds
- 5.08
- 5.32
- 0.96
- -23.2
- 65.5
- Technology sector
- 11.68
- 13.08
- 0.89
- -38.0
- 62.1

## Accumulated value of an index investment, 1997–2026

Value of a notional investment in each index from January 1997 with income reinvested. The final values differ less because of average return than because of the depth and duration of the declines along the way [01] .

Growth of one unit invested, log scale, monthly index returns, 1997–2026 [01]

## Decline from the previously achieved maximum

Average annual return does not show the size or duration of the declines that determine whether an investor retains the position. The same series measured from the previous maximum [01] .

Decline from the previous peak, %, monthly index data, 1997–2026 [01]

## Trend following: return recovered at lower volatility

The SG Trend Index compounded 1.59% a year in 2015–2021 and 7.94% a year since 2022. The gain from the start of 2026 is 14.18% [03,04,05] .

Cumulative return since 2000, %, annual index returns [03,04,05]

## Arbitrage strategies: large but uneven gains in return per unit of risk

A substantial part of these funds' assets is typically held in cash instruments and short-term bonds until the event on which the position is built. With US policy rates at 3.50–5.50% since late 2022 rather than near zero, such holdings add a return unrelated to the strategy itself.

Return per unit of volatility by epoch [01]

- Return per unit of risk
- Annual return, %
- Strategy
- 1997-2007
- 2008-2014
- 2015-2021
- 2022-2026
- 2024
- 2025
- H1 2026
- Equity market neutral
- 2.38
- 0.89
- 0.87
- 3.89
- 12.13
- 8.52
- 2.87
- Convertible arbitrage
- 2.37
- 0.65
- 1.21
- 2.08
- 9.53
- 10.89
- 6.62
- Fixed income arbitrage
- 2.22
- 0.55
- 1.77
- 2.33
- 11.42
- 7.76
- 4.22
- Merger arbitrage
- 2.77
- 1.19
- 1.24
- 1.92
- 4.44
- 7.36
- 1.99
- Multi-strategy
- 3.74
- 0.78
- 0.82
- 1.16
- 6.54
- 10.46
- 8.24

## Directional strategies: the gain requires decomposition by source

Return per unit of risk rose for both macro and long/short strategies. Assessment requires separating the component attributable to stock selection from the component explained by the direction of the market [01] .

Return per unit of volatility by epoch [01]

- Return per unit of risk
- Annual return, %
- Strategy
- 1997-2007
- 2008-2014
- 2015-2021
- 2022-2026
- 2024
- 2025
- H1 2026
- Equity long/short
- 1.73
- 0.64
- 0.95
- 1.74
- 9.16
- 14.01
- 9.42
- Equity long bias
- 1.23
- 0.34
- 0.76
- 0.83
- 14.97
- 17.95
- 9.48
- Global macro
- 1.82
- 0.65
- 0.84
- 1.55
- 9.18
- 12.62
- 5.74
- Emerging markets
- 1.04
- -0.07
- 0.62
- 0.66
- 10.36
- 19.78
- 7.09
- Event driven
- 1.95
- 0.67
- 0.78
- 0.79
- 7.40
- 8.27
- 6.12
- Distressed securities
- 2.20
- 0.40
- 0.89
- 0.59
- 12.24
- 3.72
- 1.39

## Returns of managed futures have declined since the 1980s

Compound annual return was 16.6% in 1980–1996, 1.4% in 2015–2021 and 4.0% in 2022–2026. Every sub-group remains far below its first-period level [02] .

Compound annual return by epoch, % [02]

- Compound annual return, %
- Strategy
- 1980-1996
- 1997-2007
- 2008-2014
- 2015-2021
- 2022-2026
- CTA composite
- 16.64
- 5.61
- 3.04
- 1.43
- 4.02
- Systematic
- 14.66
- 5.62
- 3.24
- 0.77
- 3.65
- Discretionary
- 15.83
- 4.26
- 3.41
- 3.00
- 5.70
- Diversified
- 14.71
- 6.83
- 3.87
- 0.66
- 4.59
- Currency
- 12.86
- 4.32
- 2.29
- 2.67
- 5.66
- Financials & metals
- 18.66
- 4.89
- 1.86
- 1.19
- 2.14
- Agricultural
- 15.83
- 0.85
- 4.93
- 3.04
- -0.30

## Correlation between strategies has fallen from its 2008–2014 peak but not been eliminated

Average pairwise correlation of monthly returns across the fourteen indices reached 0.70 in 2008–2014 and stands at 0.61 in 2022–2026 [01] .

- Pair
- 1997-2007
- 2008-2014
- 2015-2021
- 2022-2026
- Equity long bias vs composite
- 0.95
- 0.98
- 0.98
- 0.98
- Composite vs emerging markets
- 0.84
- 0.96
- 0.90
- 0.81
- Market neutral vs long bias
- 0.35
- 0.42
- 0.28
- 0.34
- Merger arb vs long bias
- 0.63
- 0.70
- 0.73
- 0.72
- Global macro vs long bias
- 0.68
- 0.64
- 0.70
- 0.68
- Fixed income arb vs macro
- 0.28
- 0.33
- 0.44
- 0.30

Monthly correlation of each pair, by epoch [01]

## Four explanations for the gain in return, two of them testable

The rise in returns coincided with several changes in market conditions. Two of the four explanations are testable against index data; the others remain unverified.

### Policy rate

Cash held by a fund and proceeds from short sales have yielded roughly 3.5–5.5% a year since late 2022 (3.50–4.00% in 2026). Any strategy with a substantial cash balance receives this component regardless of the quality of management.

### Dispersion inside indices

The dispersion of returns across individual shares may have widened after 2022; this report does not measure it. This quantity directly determines the result of market-neutral and statistical arbitrage strategies.

### Participation and execution cost

Results of the 1980s were obtained with wide bid-ask spreads and manual order execution. The decline through 2021 is similar for formalised and non-formalised strategies, which makes model design unlikely to be the sole cause.

### Machine learning

The adoption of machine learning rose in the same years as the rise in rates and the widening of dispersion. Index data do not allow the contribution of these factors to be separated.

## Principal findings

Four findings applicable to manager assessment and portfolio construction.

### Return per unit of risk has recovered

The measure has risen from its 2008–2014 minimum and now exceeds the level of the low-rate period (2015–2021). The gain is concentrated in strategies that hold a substantial cash balance and trade price discrepancies; in long-biased equity and emerging-market strategies it is small.

### Trend following earns at lower volatility

Return has recovered while the volatility of the result is about 40% below the level of 2000. This affects position size rather than the case for holding the position. Short-term strategies show only a modest recovery.

### The decline in futures returns is unlikely to be caused by models alone

It is similar for formalised and non-formalised strategies, which points to a change in trading conditions such as narrower bid-ask spreads and a larger number of participants.

### Most funds work with equities

In the August 2026 snapshot equity strategies report far more funds than arbitrage strategies. Where capacity is limited, this constrains the size of an allocation but is not grounds for avoiding such strategies.

A substantial part of the 2022–2026 gain is explained by market conditions rather than by the actions of managers. Before allocating, request the return excluding interest earned on cash: the remainder characterises the strategy itself.

## Data sources

Six groups of indices, retrieved in September 2026.

### Limitations of the estimates

- **Sample composition:** Indices include only funds that report and continue to operate. Funds that have ceased activity leave the sample, so the level of every index is overstated.
- **Fees:** Index returns are reported net of constituent fund or programme fees ([BarclayHedge methodology](https://ionanalytics.com/barclayhedge/indices/); [SG CTA methodology](https://wholesale.banking.societegenerale.com/fileadmin/indices_feeds/SG_CTA_Index_Methodology.pdf), "net of all fees"), not gross. They do not reflect every additional fee, tax or trading cost a particular investor may incur.
- **Early futures period:** Figures for 1980–1996 are calculated from a small sample. The direction of change is informative, the level of return is not.

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## Sources

- [01] [BarclayHedge — Barclay Hedge Fund Indices (monthly, January 1997–June 2026)](https://portal.barclayhedge.com/cgi-bin/indices/displayIndices.cgi?indexID=hf). Monthly net returns of the composite and each strategy index (one page per index, linked from this list); retrieved 2026-09-11.
- [02] [BarclayHedge — Barclay CTA Indices (annual, 1980–2026)](https://portal.barclayhedge.com/cgi-bin/indices/displayIndices.cgi?indexID=cta). Annual returns for the CTA composite (from 1980) and sub-style indices (from 1987), one page per index; retrieved 2026-09-11.
- [03] [SG Trend Index (Societe Generale Prime Services), via BarclayHedge](https://portal.barclayhedge.com/cgi-bin/indices/displayHfIndex.cgi?indexCat=SG-Prime-Services-Indices&indexName=SG-Trend-Index). Month-to-date and year-to-date net returns through 2026-09-10. Per SG methodology: daily index from 2000, equal-weighted, 10 largest trend followers.
- [04] [SG CTA Index (Societe Generale Prime Services), via BarclayHedge](https://portal.barclayhedge.com/cgi-bin/indices/displayHfIndex.cgi?indexCat=SG-Prime-Services-Indices&indexName=SG-CTA-Index). Month-to-date and year-to-date net returns through 2026-09-10. Per SG methodology: daily index from 2000, 20 largest managed futures programmes.
- [05] [SG Short-Term Traders Index (Societe Generale Prime Services), via BarclayHedge](https://portal.barclayhedge.com/cgi-bin/indices/displayHfIndex.cgi?indexCat=SG-Prime-Services-Indices&indexName=SG-Short-Term-Traders-Index). Month-to-date and year-to-date net returns through 2026-09-10. Per SG methodology: daily index from 2008-01-01, programmes with an average holding period under ten days.
- [06] [BarclayHedge — reporting fund counts by strategy index (August 2026)](https://portal.barclayhedge.com/cgi-bin/indices/displayIndices.cgi?indexID=hf). Number of funds that had reported August 2026 returns to each strategy index, as shown on each index page; snapshot 2026-09-11. Counts rise as late reports arrive.

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## Citation context

Across fourteen strategy indices the average return per unit of volatility fell from 2.01 in 1997–2007 to 0.55 in 2008–2014. It has since recovered to 1.46 in 2022–2026, above the 0.98 of 2015–2021. The recovery is not evenly distributed: it is concentrated in strategies that trade price discrepancies between related assets, and absent in strategies whose return is determined by the direction of the equity market.

Sample and method: fourteen hedge fund strategy indices over thirty years, split by interest-rate regime.

Limits: the 2022-2026 period contains 54 months against 84 in the previous one, so the gain is comparable to the estimation error. The direction of change is supported; its magnitude is not. Indices include only funds that report.

Primary input: [BarclayHedge — Hedge Fund Indices (monthly, 1997–2026)](https://portal.barclayhedge.com/cgi-bin/indices/displayHfIndex.cgi?indexCat=Barclay-Hedge-Fund-Indices&indexName=Barclay-Hedge-Fund-Index).

Stable permalink: [https://blckridge.com/research/hedge-fund-strategy-returns-2026/#citation-context](https://blckridge.com/research/hedge-fund-strategy-returns-2026/#citation-context).

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