Hedge Fund Data

Monthly hedge fund performance review – December 2022

20/01/2023
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Hedge fund performance was generally positive in December, the average hedge fund net return across all strategies was 0.50%. Strategies with a lower beta to equities typically outperformed other strategies, amidst drawdowns in global equities during December. The strongest performing strategy in December was multi-strategy, which was also the strongest performing strategy in 2022. The weakest performing strategy in December was long biased, which was also the weakest performing strategy in 2022. Hedge fund performance dispersion was slightly narrower than observed in November.

HEDGE FUNDS
Hedge fund compositeHedge fund returns were generally positive in December. The average hedge fund net return across all strategies was 0.50%. Strategy performance was mixed, all but two of the strategies monitored by Aurum’s hedge fund data engine had positive returns. Strategies with a lower beta to equities outperformed. Hedge fund performance dispersion was slightly narrower than in November.
Long-biasedLong biased funds monitored by Aurum’s Hedge Fund Data Engine returned an average of -0.71% in December, the weakest performing strategy in December. Long biased is the weakest performing strategy in 2022, down 12.18%. December sub-strategy returns were mixed, the weakest performing sub-strategy was long biased – commodities, down 3.20%; the strongest performing sub-strategy was long biased – diversified growth, up 1.01%.
QuantQuant funds monitored by Aurum’s Hedge Fund Data Engine returned 0.15% on average in December. It was one of the strongest performing strategies in 2022, up 8.53%. Quantitative equity market neutral was the strongest performing sub-strategy in December, up 1.91%. The weakest performing sub-strategy in December was risk premia, down 2.08%.
Equity long/shortEquity long/short funds returned an average of 0.10% in December. Equity long/short is the second weakest master strategy monitored by Aurum’s Hedge Fund Data Engine in 2022, down 9.59%. Sub-strategies had mixed performance, ranging from fundamental equity market neutral, up 1.97%, to US long/short, down 0.88%.
MacroMacro funds monitored by Aurum’s Hedge Fund Data Engine generated an average net return of 1.46% in December. All sub-strategy returns were positive. Global macro was the strongest performing sub-strategy; managers who moved short duration positions out of the US, in favour of Europe, performed strongly as rate hike expectations for the ECB were revised upwards.
Multi-strategyMulti-strategy funds monitored by Aurum’s Hedge Fund Data Engine returned an average of 1.76% in December, the strongest performing master strategy group during the month and during 2022 where it was up 9.46%. The largest funds, with an AUM of over $5bn, outperformed smaller counterparts, both in December and during 2022.

MARKETS
Major eventsThe Fed’s 2023 and 2024 rate projections were revised upwards in December. Both the Bank of England and the ECB made 50bp rate hikes in December. The Bank of Japan expanded its yield curve band, the most significant change in policy from the central bank for some time. US inflation readings indicated a decrease in US inflationary pressures, alongside upwardly revised growth figures. Sam Bankman-Fried, founder of the beleaguered crypto exchange FTX, was extradited from the Bahamas to the US.
EquitiesGlobal equities sold off in December in the face of revised Fed rate hike projections that exacerbated investor concern about an upcoming global recession. Chinese equities were an exception to the negative trend elsewhere, benefiting from the end of restrictive zero-COVID policies. Global equity indices finished 2022 with double-digit losses.
Government bondsThe Bank of Japan caught markets off guard in December by expanding the tolerance range for Japanese government bond yields as part of its yield curve control policy. US Treasury yields, particularly for longer-term bonds, rose in December in response to expectations of Fed rate hikes being revised upwards for 2023 and 2024. UK and European bond yields increased substantially.
Corporate bondsCorporate bond performance was generally negative in December in the face of risk-off market sentiment. All credit indices had negative performance in 2022. Emerging market corporate bonds and US leveraged loans were the best performers during the December, with positive returns. Investment grade credit experienced losses of a smaller magnitude than lower-quality bonds.
CurrenciesThe US dollar weakened in December, particularly early in the month. The Japanese yen strengthened, assisted by the Bank of Japan’s changes to its yield curve control policy. The Russian ruble was the weakest performing major currency against the US dollar, amidst changes in oil importation policy in UK/EU.
CommoditiesPrecious metals, particularly silver, benefitted from a weaker US dollar. Natural gas prices experienced significant volatility, particularly in the latter part of December, in response to warmer-than-expected weather forecasts for January.
2022 saw significant divergence in the performance of WTI and Brent crude oil prices; WTI significantly outperformed.

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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