Hedge Fund Data

Hedge fund industry performance review – December 2023

23/01/2024
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Hedge fund performance was generally positive in December; the average asset weighted hedge fund net return across all strategies was 1.64%. All hedge fund strategy groups had positive average returns, with the exception of quant. Strategies exhibiting a higher beta to equities outperformed as equity markets continued to rally. Hedge fund performance dispersion was narrower than observed in November.

HEDGE FUNDS
Hedge fund compositeHedge fund performance was generally positive in December; the average hedge fund net return across all strategies was 1.64%. The strongest performing strategy for a second month was long biased. Most underlying strategies had positive average net asset weighted returns, although quant made losses. Strategies exhibiting a higher beta to equities were the strongest performers. Hedge fund performance dispersion was narrower than observed in November.
Long-biasedLong biased funds monitored by Aurum’s Hedge Fund Data Engine returned an average of 4.21%, the strongest master strategy group in December. All sub-strategies had positive returns, with the exception of long biased – commodities.
QuantQuant funds monitored by Aurum’s Hedge Fund Data Engine returned -1.18% on average in December, the weakest performing master strategy group for a second month. Medium-term signals incorporating fundamental data were particularly weak, and short covering led to losses for a lot of funds. All sub-strategies had negative returns, with the exception of risk premia.
Equity long/shortEquity long/short funds returned an average of 3.04% in December, the second-strongest strategy during the month as equity markets rallied. Sub-strategy returns were all positive – with sector focused funds experiencing the strongest performance for a second month.
MacroMacro funds monitored by Aurum’s Hedge Fund Data Engine generated an average net return of 1.55% in December. All sub-strategy had positive returns, the strongest of which was macro emerging markets, up 3.45%.
Multi-strategyMulti-strategy funds monitored by Aurum’s Hedge Fund Data Engine returned an average of 0.42% in December. Smaller funds (with an AUM of up to $1bn) generally outperformed their larger counterparts.

MARKETS
Major eventsThe equity market rally that started in November continued into December. Market sentiment was supported by increasing market conviction about Fed rate cuts in 2024. Increased Houthi rebel attacks in the Red Sea endangered commercial shipping routes through the Suez Canal and subsequently global supply chains, forcing container ships to take much longer and costlier routes.
EquitiesMost major equity indices added to gains made in November, supported by the anticipation around Fed rate cuts in 2024. Chinese equities were, once again, an exception from the wider positive picture, amidst the wider deflationary environment in China.
Government bondsAll major economies’ 10-year bond yields fell during December amidst expectations about cooling inflation and monetary policy easing in 2024. Greek government bond yields fell in response to an improvement in credit rating.
Corporate bondsCredit indices across the quality spectrum made gains in December, supported by risk-on market sentiment and lower inflation readings in the US.
CurrenciesThe US dollar weakened against all major currencies once again in December. Risk-on sentiment made the US dollar’s safe haven status become less appealing. The Japanese yen made significant gains against the US dollar after markets interpreted comments from the Bank of Japan as indicating an end to its ultra-accommodative yield curve control policy.
CommoditiesOil prices fell in December, as US production reached record levels. Natural gas prices continued to fall on milder-than-expected weather forecasts. Precious metals prices benefited from US dollar weakness.

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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