Hedge Fund Data

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

02/07/2020
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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: The Hedge Fund Data Engine is a proprietary database maintained by Aurum Research Limited (“ARL”).  For information on index methodology, weighting and composition please refer to https://www.aurum.com/aurum-strategy-engine/. For definitions on how the Strategies and Sub-Strategies are defined please refer to https://www.aurum.com/hedge-fund-strategy-definitions/

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