Hedge Fund Data

Multi-strategy deep dive – 2021

13/04/2021
2 min read

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12-month review to February 2021

This is an interesting period to review performance of the multi-strategy master strategy, because it includes two particularly challenging months for the hedge fund industry, March 2020 and January 2021. To put the performance of multi-strategy hedge funds into context it is helpful to recall what happened across major markets over the past 12 months. Global equities, and many other asset classes, started to sell-off in February 2020, followed by severe dislocations in March 2020 as COVID-19 spread globally. Quick and decisive central bank intervention, however, encouraged investor confidence and triggered rebound rallies across assets; global equities finished 2020 up in the mid-teens as a percentage, led by strength in the US equity markets, whilst equities in Europe, UK and Hong Kong struggled. Energy commodities sold off significantly, due to the impact of COVID-19 on global industrial output and consumer demand. Meanwhile, ‘safe haven’ assets, such as gold and silver, experienced strong rallies. On the fixed income side, global yields fell across the board.

The re-emergence of the retail investor is a phenomenon that has been spoken about for some time. This came into the limelight at the start of 2021 when a group of young retail investors, communicating through social media, targeted certain heavily-shorted stocks in a coordinated short-squeeze in January. This caused unprecedented moves in a small number of stocks, generating severe losses for a number of funds employing equity long/short strategies with short positions in these stocks. The spill-over from this event into the broader market sparked significant deleveraging that adversely affected the wider hedge fund universe, albeit this was contained mainly within the equity long/short space. February then saw a meaningful reversal and re-tightening of the dislocations that were created in January, with many hedge funds posting their best monthly performance ever.

All–in all, this has been both a challenging and rewarding period for hedge funds, with some suffering severe losses at these inflection points, while others capitalised on the opportunities created by the dislocations. Multi-strategy funds typically have exposure across all strategies and asset classes and were at the forefront of these dislocations. Despite showing significantly higher than normal volatility, as a group, they have come through this period with significant positive performance.

Multi-strategy funds invest across a broad range of areas and Aurum’s Hedge Fund Data Engine does not have industry-wide data on the performance attribution of the underlying sub-strategies within multi-strategy funds. However, examining the performance of hedge fund strategies on a standalone basis sheds some light into the potential main drivers of multi-strategy funds’ recent returns.

NET RETURN OF MASTER STRATEGIES

All figures and charts use asset weighted returns unless otherwise stated. All data is sourced from Aurum Hedge Fund Data Engine.
* Aurum Hedge Fund Data Engine Asset-Weighted Composite Index.

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