Hedge Fund Data

Monthly hedge fund performance review – December 2021

25/01/2022
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Most hedge fund strategies finished 2021 with positive performance in December, with slightly tighter dispersion than was observed in November. Strategies with a higher beta to equities tended to perform strongly as global equities ended the year with a bang. Equity L/S funds were the exception to the generally positive picture, making modest losses. Investor sentiment was buoyed by strong earnings growth, and as fears were assuaged about the severity of the Omicron COVID-19 variant.

HEDGE FUNDS
Hedge fund compositeMost hedge fund strategies monitored by Aurum’s Hedge Fund Data Engine delivered positive returns in December. The average hedge fund net return in December across all strategies was 1.12%, bringing 2021 performance to 7.60%. Performance dispersion was slightly tighter than in November.
Long biasedLong biased funds monitored by Aurum’s Hedge Fund Data Engine returned an average of 2.06% in December, bringing 2021 returns to 10.89%. All sub-strategies were positive for the month. The best performing sub-strategy was long biased – commodities, which benefited from rising oil prices amidst a reversal in November’s Omicron-related negative market sentiment.
QuantQuant funds monitored by Aurum’s Hedge Fund Data Engine generated 2.57% in December, bringing 2021 returns to 8.41%. 2021 was the best year’s performance for quant strategies since 2014. All sub-strategies were positive for the month. The best performing sub-strategy was quantitative equity market neutral.
Equity long/shortEquity Long/Short funds monitored by Aurum’s Hedge Fund Data Engine returned an average of -0.18% in December, the weakest performing strategy for a second month. Returns were at 4.08% for 2021. Sub-strategies delivered mixed performance, the worst of which were in Asia Pacific, sector and global funds.
MacroMacro funds monitored by Aurum’s Hedge Fund Data Engine had an average return in December of 0.88%. Despite a strong December, it remains the weakest performing master strategy in 2021 with a return of -0.07%; the only master strategy with negative year-to-date returns. Sub-strategy returns in December were all positive; macro commodities was the strongest performing.
Multi-strategyMulti-strategy funds monitored by Aurum’s Hedge Fund Data Engine returned an average of 1.15% in December. All fund sizes delivered positive performance, however the largest funds ($5bn+) delivered the strongest performance.
MARKETS
Major eventsCOVID-19 rates soared globally in December as the Omicron variant spread rapidly. In well-vaccinated wealthy countries, infection rates didn’t translate into mass hospitalisations, and it appeared that the Omicron variant may be less severe than other COVID-19 variants. The WHO continued to warn about the possibility of further variants emerging as a consequence of global vaccine inequity. Market sentiment wasn’t adversely impacted by Omicron infection rates, and most equity markets had a positive month in December. The majority of members of the US Federal Reserve’s Federal Open Market Committee were projecting three rate hikes in 2022 at their meeting in mid-December.
EquitiesGlobal equity indices were almost all positive at the end of December, with the exception of Chinese markets. Despite COVID-related restrictions being re-introduced in many European countries, this didn’t adversely impact market sentiment; European equities were particularly bullish. Chinese equities continued to fall as Evergrande’s debt was downgraded to default status after missing a payment, which weighed on investor sentiment more widely.
Government bondsGovernment bond yields rose in December reflecting the shift to more risk-on market sentiment. The largest increase in yields was seen in European bonds and UK gilts; despite generic 10 year bond yields increasing significantly, German bonds were the last European bond to still have a negative nominal yield.
Corporate bondsCorporate bond performance was generally positive in December, supported by more bullish market sentiment. US-denominated emerging markets debt and the lower quality US high yield were the strongest performers. Returns were slightly negative in US investment grade corporate bonds.
CurrenciesThe US dollar was supported by the outcome of the US Federal Reserve’s Federal Open Market Committee meeting, but slipped at the end of the month. Sterling strengthened against the US dollar after the Bank of England increased rates from 0.1% to 0.25% in mid-December, going against the market’s expectations. Emerging market rate hikes supported a variety of currencies, most notably for the Mexican peso.
CommoditiesCommodity prices generally increased in December. Gold prices were supported by the tapering projections that came out of the US Federal Reserve’s Federal Open Market Committee meeting. Industrial metals prices increased on supply concerns. Oil prices reversed November’s declines and increased significantly. Natural gas was the exception; warmer-than-expected weather in the US contributed to the decline.

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