HEDGE FUND DATA 22/02/2021

Monthly hedge fund performance review – January 2021

January felt like an astonishingly long month, packed full of dramatic political events and volatile market moves. It proved to be a challenging month for many hedge fund strategies. News flow was dominated by the short squeeze in GME, AMC and other stocks favoured by retail traders using the now infamous r/wallstreetbets Reddit forum to specifically target stocks with high short interest from hedge funds. Extreme short covering and deleveraging triggered by these events were felt widely in equity-orientated strategies.

Hedge fund compositeStrategies monitored by Aurum’s Hedge Fund Data Engine generated mixed returns in January, but the attention was on the performance of equity long/short funds and multi-strategy platforms impacted by the retail short squeeze. The average hedge fund return in January across all strategies was -0.40%. Performance dispersion was similar to that observed in December.
Long biasedDespite equity market volatility in Europe and the US, long biased funds monitored by Aurum’s Hedge Fund Data Engine generated modestly positive returns in January of 0.55%. Most sub-strategies were positive for the month, with the strongest performing sub-strategy being long biased commodities, which was up 1.58% for the month.
QuantQuant funds monitored by Aurum’s Hedge Fund Data Engine returned an average of -1.54% in January, continuing the run of generally poor performance for the strategy. It remains the only master strategy monitored by Aurum with negative returns over the past 12 months. Most sub-strategies generated negative performance during January, with the exception of risk premia, which was up 1.58% for the month.
Equity long/shortIn a historic, newsworthy month the equity long/short strategy peer group monitored by Aurum’s Hedge Fund Data Engine returned -2.54% on average in January. Global, US and sector-focused funds were the poorest performers as retail investors triggered a short squeeze on a number of widely shorted stocks. Dispersion was very broad.
MacroMacro funds monitored by Aurum’s Hedge Fund Data Engine returned an average of -0.04% in January. The commodities and FIRV sub-strategies had positive performance for the month, whilst emerging markets macro and global macro both lost money on the month. Dispersion was tighter than that seen in December.
Multi-strategyMulti-strategy funds monitored by Aurum’s Hedge Fund Data Engine returned an average of -0.37% in January. The largest multi-strategy funds (AUM >$5bn), including some that were notably involved in the retail short squeeze at the end of the month, were the poorest performers, losing -1.25%. All smaller AUM groups of funds generated positive performance.
Major eventsPresident Biden’s inauguration was preceded by tumultuous and violent events in the US. The Capitol building was stormed by violent pro-Trump rioters. President Trump’s inflammatory rhetoric that preceded the riot resulted in impeachment proceedings against him on the charge of inciting an insurrection. Market volatility spiked at the end of the month, fuelled by a short squeeze by retail investors in heavily-shorted names, including GameStop.
EquitiesDeveloped market equity indices delivered largely negative performance in January. US equity indices were hit by the broader deleveraging, incited by the retail investor groundswell surrounding certain stocks. European equities made losses throughout the month. Emerging market and Asian equities outperformed, Chinese equities in particular, supported by positive economic data reports.
Government bondsPoorer-than-expected US GDP data resulted in US Treasury yields increasing at the end of the month, with the yield curve slightly steepening. UK Gilt yields also increased as the country entered another full lockdown. Peripheral and core European bond yields increased mid-month, but as volatility in equity markets increased at month end, core European yields reduced somewhat.
Corporate bondsCorporate bond performance was mixed during January. High yield continued to outperform investment grade; poorer quality high yield credit was the strongest performer. In Emerging markets, only hard currency corporate credit was positive for the month.
CurrenciesAs risk-on sentiment reversed at month end, the US dollar, a safe haven currency, strengthened. Emerging market currencies weakened significantly against the US dollar. Sterling strengthened during the month as the UK’s vaccine programme steamed ahead.
CommoditiesOil prices increased markedly as Saudi Arabia announced a reduction in production. Precious metals lost money at the beginning of the month, but as investors risk appetite reduced to month end, those losses were reduced. Industrial metals were a mixed picture; oversupply of zinc resulted in prices falling, nickel made strong gains as the EU escalated a challenge at the WTO over Indonesia’s export curbs on nickel ore.

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