Hedge Funds outperform, fueled by Tech and Asian strategies, quant lags
Hedge funds are having their best outperformance year in ages in 2020. Underneath the surface, this outperformance has engendered confidence in managers' portfolios given the elevated Gross/Net current levels. Some highlights by strategy and region include outperformance of Equity Long/Short technology funds and Asian focused hedge funds and underperformance for Systematic strategies, especially Systematic Macro.
2020: The year of the hedge fund
If only every year could be like 2020 for Hedge Funds………………………….
2011, 2015 and 2018 witnessed hedge funds lose less than global equities, which was great, they were "doing their job". However, the industry remained under pressure over the past decade because a few years of outperformance did not compensate for many years of trailing benchmark equities in bull market rallies. After all, investors can unfortunately not pay their bills with downside protection only, they need returns, and long-only equity strategies were delivering. Everything has changed in 2020. Hedge funds are finally generating higher returns than global equities in a positive year for the benchmark long-only indices. Albeit, much caveat must be given to 2020's completely abnormal market fluctuations, but these types of fluctuations as YTD performance proves, are the very market environment and scenarios that hedge funds are built for; hedge funds protected capital during February/March 2020, then participated in the recovery rally since.
Gross Net Levels are Elevated: Risk managers tell PMs, stop fighting the last battle
Call it tail risk boredom, call it pandemic blues, whatever it is, hedge fund managers don't care. 2016 marked the epitome of political de-risking where tail risk scenarios were the hot topic among the "it" crowd in hedge funds through Brexit and the US presidential election. 2016 was a severe year of underperformance for hedge funds versus the overall market. This year is different, potentially spurred by February/March "black swan, white swan, purple swan, flashing sirens swan" events. Hedge fund books performed as well as they could and managers traded the elevated volatility on a 24/7 basis until the market finally resolved itself into the current status quo central bank backed complacency. A general consensus is that the central banks have the backstop in place and after March 2020, whoever bets against them has been mauled. In such an environment its easier to not fight the fed and run a portfolio based upon fundamental analysis rather than tail risk hedging and de-risking until macro clarity emerges, because unfortunately, many investors have sadly accepted that macro clarity might never emerge.
Equity Long/Short Technology Specialists: Its going "well"
Everyone is making money
It is hard to differentiate a great tech hedge fund from the crowd this year when much of our technology Equity Long/Short specialist peer group is up 20% to 50%. Secular technology disruption themes that were supposed to take five to ten years to emerge have taken place in five to ten months. In such an outsized year for Tech specialist HFs, one ponders on the repeatability of such herculean efforts. This question arises at the same time investors are wondering whether all of the upside of disruption have been pulled forward by the pandemic, leaving a far less rosy growth picture ahead for many tech darlings of 2020.
Asia Hedge Funds: Sitting on growth, profits and health
FDI, Retail, Growth, Containing COVID, No Trade War, its Working!
