Hedge Fund Data

Mirror, mirror on the wall – which hedge fund strategy is fairest of them all?

02/07/2020
1 min read
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Hedge fund performance Feb/Mar vs Apr/May 2020

As many wise investors will tell you, one of the keys to achieving outperformance over the long-term is to control your losses. We are all familiar with the concept of ‘asymmetry of loss’, i.e. if you lose 10%, you need to make just over 11% to return back to break-even. You lose 50%, you need to return 100% to get back to break-even; relatively straightforward but a critical lesson to keep in mind. With the asymmetry of loss having such an impact on long-term performance, it is interesting to examine how the different hedge fund strategies – as reported in the Aurum Hedge Fund Data Engine – performed during the peak of the COVID-19 market dislocation reflected against the subsequent market rebound in April and May. The last two months saw the hedge fund industry return 6.4%, the strongest two month return since April-May 2009 (+6.5%). However, this was after the industry lost 10.52% over February-March, leaving net returns still down just under 4.8% over the four month period in aggregate.

 

When we break down returns at the sub-strategy level over the four month period, it is clear that some strategies were far more stable than others and some fared better from a net returns perspective. Fixed income relative value and multi-strategy were the only two sub-strategies to finish in positive territory, whilst Arbitrage and Statistical Arbitrage finished close to flat. Global Macro and Activist both contained losses to around 1%, however, Activist managers exhibited significantly more volatility than any of the aforementioned strategies. At the other end of the spectrum is Risk Premia – a strategy bucket that is often used by investors as a ‘cheaper’ alternative to replicate hedge-fund performance, which lost just over 10% net in aggregate. Other poor performers were Quantitative Equity Market Neutral (QEMN), Emerging Market Macro, and Credit.

Hedge fund cumulative performance February – May 2020

Reporting Indicator of Eligible Funds Having Reported (as at 01 July-20). By fund assets (monthly returns, Feb 20 to May 20): 76%. By no. of funds (monthly returns, Feb 20 to May 20): 73%.

Source: Aurum’s proprietary Hedge Fund Data Engine database containing data on over 4,000 hedge funds representing in excess of $2.9 trillion of assets as at December 2019. Information in the database is derived from multiple sources including Aurum’s own research, regulatory filing, public registers and other database providers. Performance in the above chart is asset weighted. Box size reflects the AUM of the hedge fund industry, as tracked by Aurum. See the disclaimer and strategy definition for further details.

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